What does functional obsolescence refer to?

Functional obsolescence specifically refers to a reduction in a property's value that arises from features or design elements that are no longer considered desirable or effective in meeting the current needs of users or market demands. This can occur when a property has outdated technology, poor layout, or inefficient systems that decrease its functionality compared to newer alternatives. For instance, a home with a single bathroom when similar homes have multiple bathrooms might experience functional obsolescence.

This concept is key in property appraisals because it helps appraisers determine the effect of property features on market value. Understanding functional obsolescence allows appraisers to adjust their assessments and provide a more accurate estimate of value based on the property's condition relative to current trends and expectations in the market.