What does 'Functional Obsolescence' refer to in real estate?

Functional obsolescence refers to a reduction in the value of a property due to design flaws or outdated features that make the property less desirable to current buyers or renters. This can occur when a home or building has become less functional over time due to changes in design preferences, technology, or market demands. For example, a property with too few bathrooms, poor layout, or outdated electrical systems may suffer from functional obsolescence because these features no longer meet the needs or desires of potential occupants.

Understanding functional obsolescence is crucial for appraisers, real estate professionals, and property investors as it directly affects property valuations and investment decisions. It highlights how important it is for property owners to keep their buildings updated and adaptable to changing market trends to maintain their value.