In real estate appraisal, obsolescence refers to a loss in value resulting from reduced desirability or usefulness of a structure as its design, layout, or features become outdated. This decline in value occurs when a property no longer meets current market preferences or functional standards, often leading to diminished income potential.
Obsolescence may be classified as functional or economic. Functional obsolescence arises from deficiencies within the property itself, such as poor design or inadequate systems, while economic obsolescence is caused by external factors such as changes in the surrounding area or market conditions that negatively affect value.
