What does external obsolescence refer to?

External obsolescence refers to a reduction in a property's value due to factors that are outside of the property itself, typically related to the surrounding environment or market conditions. This can include economic downturns, changes in the neighborhood, or factors such as new developments that negatively impact the desirability of the area.

For example, if a formerly vibrant area experiences high unemployment rates, or if new factories are built nearby that create noise and pollution, these external conditions can lead to a decrease in home values because buyers are less interested in properties in that area.

Understanding external obsolescence is crucial for appraisers as it highlights the importance of external factors that can influence property value far beyond the physical condition or qualities of the property itself. Recognizing how the broader economic environment and community characteristics impact property value is essential in accurate property appraisal.