Which two types of obsolescence are commonly identified in real estate appraisals?

In real estate appraisals, obsolescence refers to the reduction in property value due to various factors that affect a property's desirability or functionality. Two commonly identified types of obsolescence are economic and functional obsolescence.

Economic obsolescence occurs when external factors, such as changes in the economy or neighborhood, negatively influence property values. This can include aspects like a declining local economy, changes in zoning laws, or the introduction of undesirable developments nearby. These factors are typically out of the property owner's control and can significantly impact market perceptions and property values.

Functional obsolescence relates to the property's features and layout. It arises when a property has outdated designs or lacks certain amenities that modern buyers desire. For example, an excessively small kitchen in a home compared to contemporary standards may make the property less appealing to potential buyers. This type of obsolescence is usually related to changes in buyer preferences and advancements in building technologies.

Together, economic and functional obsolescence provide a comprehensive view of how different external and internal factors can diminish a property's value in the eyes of appraisers and potential buyers. Understanding these types of obsolescence is crucial for appraisers to accurately assess property values and determine the appropriate approaches for improvement or investment.