Obsolescence

Obsolescence is a loss of property value caused by factors that make a property less desirable or less useful.

• A form of depreciation
• Can be curable or incurable
• May result from internal or external causes
• Affects market value, not land value alone

• Functional Obsolescence
  • Loss of value due to outdated or inadequate features
  • Examples: poor floor plan, outdated plumbing or wiring, lack of insulation
  • May be curable or incurable

• External (Economic) Obsolescence
  • Loss of value caused by factors outside the property
  • Examples: nearby airport, freeway, pollution, zoning changes, declining neighborhood
  • Almost always incurable

• Curable Obsolescence
  • Cost to fix is less than the value added
  • Example: replacing outdated fixtures

• Incurable Obsolescence
  • Cost to fix is greater than value added
  • Example: poor location near an industrial site

• External obsolescence is never caused by the owner
• Land does not suffer obsolescence, only improvements