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Understanding Functional Obsolescence in Real Estate: How it Impacts Property Value

CEO Khai Intela
Functional obsolescence can occur in various aspects of life, such as outdated technology like payphones and cassette tapes. In real estate, it refers to a property's failure to meet market expectations on a functional level,...

What is Functional Obsolescence Real Estate

Functional obsolescence can occur in various aspects of life, such as outdated technology like payphones and cassette tapes. In real estate, it refers to a property's failure to meet market expectations on a functional level, resulting in a decrease in value and desirability.

What is Functional Obsolescence in Real Estate?

Functional obsolescence in real estate refers to features or aspects of a home that are outdated and not easily improved. This could include an undesirable floor plan, inadequate square footage, a lack of bathrooms, or poor property condition. These factors can negatively impact a property's value and deter potential buyers or renters.

Examples of Functional Obsolescence

An Unfunctional Floor Plan

A poorly designed floor plan, such as having to walk through one bedroom to get to another or a low ceiling height, can make selling a home more challenging by reducing its appeal to buyers.

Square Footage

Insufficient space coupled with an excessive number of bedrooms can render a property functionally obsolete. Rooms that are too small for practical use can deter potential buyers.

A Lack of Bathrooms

A property with multiple bedrooms but only one bathroom will likely be undesirable to buyers or tenants who require more amenities. The lack of bathrooms can be a prevalent form of functional obsolescence in older homes.

Property Condition

A property that has not been well-maintained can be considered functionally obsolete. Neglected properties are often overlooked by buyers who seek well-maintained homes, leading to a decline in value.

External Factors

External factors, such as undesirable design features, noise pollution, freeway noise, or high crime rates, can also contribute to functional obsolescence and decrease a property's desirability.

The Four Types of Functional Obsolescence

Functional obsolescence can be categorized into four types: incurable, curable, superadequacy, and economic.

Incurable Functional Obsolescence

This type is beyond the homeowner's control, such as a bustling road or neighborhood deterioration. These issues should be noticeable during the property purchase process.

Curable Functional Obsolescence

Curable obsolescence refers to issues that can be fixed, such as homes that haven't been well maintained. However, the cost of repairs and improvements should be considered before investing in such properties.

Superadequacy

Superadequacy occurs when improvements or additions exceed market requirements without adding equivalent value. Investing in excessive upgrades might not yield a return on investment.

Economic Obsolescence

Economic obsolescence occurs due to external economic factors, such as increased crime rates, undesirable development, or market forces like supply and demand. These factors can impact a property's value.

The Impact of Functional Obsolescence

Functional obsolescence can affect a property's value and may be considered during a real estate appraisal. Curable obsolescence is generally less problematic than incurable obsolescence. Appraisers may discount the value based on the severity and type of obsolescence.

Final Thoughts on Functional Obsolescence in Real Estate

Understanding functional obsolescence is crucial for prospective homebuyers and real estate investors. Avoiding obsolescence can ensure profitable investments. Each property is unique, and staying aware of potential obsolescence is essential for success in the real estate market.

To learn more about functional obsolescence in real estate and related topics, feel free to reach out to Bill Gassett, a renowned expert in the field. For over 37 years, Bill has been helping people navigate the Metrowest MA real estate market and can provide valuable insights into buying and selling properties.

How Does Functional Obsolescence Affect a Real Estate Appraisal

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