What is functional obsolescence in appraisal terms?

Functional obsolescence refers specifically to a decrease in property value caused by factors that result from changes in design, technology, or consumer preferences. This can manifest in various forms, such as outdated layouts or features that no longer meet current standards or expectations.

For instance, a home that lacks modern amenities like energy-efficient appliances or open-concept living may not command the same market value as more contemporarily designed properties. Similarly, technological advancements could render certain property features obsolete, leading to reduced desirability. This type of obsolescence is distinct from physical deterioration, which pertains to the wear and tear of the property over time, or external economic factors that influence market demand. Understanding functional obsolescence is crucial for appraisers as it helps accurately assess a property's worth in relation to current market conditions and consumer preferences.