Complete Appraisal Blog

Functional obsolescence is a term used in real estate appraisal to describe a situation where a property's amenities or design detract from its overall value in the market. In other words, functional obsolescence occurs when the property's features are outdated or no longer considered useful to a potential buyer.

For example, a small bathroom in a house may not be attractive to potential buyers, as they may prefer larger bathrooms that are seen as more modern and desirable. Another example of functional obsolescence may be a house with 1960's wallpaper and paneling, as these styles may not be considered "in-style" anymore.

Functional obsolescence is important to consider when appraising real estate, as it can significantly reduce the value of the property. Appraisers typically calculate the loss in property value due to functional obsolescence through a process called the 'depreciation rate'. This rate accounts for the expected life of all features in the property and how much value those features have lost over time. The sum of all the depreciation rates will give an overall estimate of how much functional obsolescence has affected the value of the property.

It’s important for property owners to keep up with trends in order to maintain the value of their property. Doing small updates, such as replacing old countertops or flooring, can make the property more attractive to potential buyers and can help increase the value of the property.

Keep in mind that functional obsolescence is just one factor that appraisers consider when estimating a property's worth. Other factors include location of the property and size of the lot, as well as condition of the property. Overall, appraisers strive to provide an accurate market value estimate of a property based on all factors, including functional obsolescence.