For appraisers, functional obsolescence can be a challenging concept because the elements that influence property values may not be obvious or immediately apparent. To help you better understand what it means and how to pinpoint it, we’re exploring some examples, the different types of functional obsolescence, and how it can influence property values.
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What is functional obsolescence?
The literal textbook definition from The Dictionary of Real Estate Appraisal explains functional obsolescence as, “the impairment of functional capacity of a property according to market tastes and standards.” To put it in laymen’s terms, it refers to the flaws (perceived or otherwise) in a property’s functionality that negatively affect its value.
Functional obsolescence may or may not be caused by trends in buyer or market preferences, outdated design, or even advances in technology. Let’s look at a few examples:
- A home has three bedrooms, but to reach the third bedroom, you have to walk through the other secondary bedroom. Buyers are likely to see this as a flaw in the floor plan regardless of trends.
- A home has a separate formal living room, an enclosed kitchen, and a separate dining room. Today’s buyer prefers a more open, casual layout and may find the separate rooms a flaw in the floor plan, though this may change with market trends.
- A home with radiator heat and window unit air conditioning may be seen as functionally obsolete, and thus less valuable, as more modern homes have forced air furnaces and central air conditioning.
Types of functional obsolescence
The extent to which functional obsolescence affects a home’s value can depend on what type it is.
Curable obsolescence
Curable obsolescence is a flaw in the property that can be “cured.” Once the owner fixes, repairs, or modifies the property to…