What factor is considered an externality in the context of property valuation?

In property valuation, externalities refer to factors outside of the property that can have an impact on its value. Local crime rates influencing neighborhood desirability is a prime example of an externality because they are not inherent characteristics of the property itself. Instead, they reflect broader societal conditions that affect potential buyers' perceptions and decisions. High crime rates can diminish desirability, leading to lower property values, while areas perceived as safer may see increased demand and higher prices.

In contrast, the other factors listed, such as a property’s age, square footage, and heating or cooling efficiency, are considered internal characteristics. They are physical attributes of the property that can be objectively measured and evaluated rather than being influenced by external conditions or societal factors. Understanding these distinctions helps property valuers assess the full range of elements that affect property value, both internal and external.