What does functional obsolescence refer to in property appraisal?

Functional obsolescence specifically addresses the reduction in a property's value stemming from outdated designs or inadequate functionality in relation to current market expectations and standards. This concept recognizes that as consumer needs and preferences evolve, properties built with older design standards may no longer meet current requirements, leading to a decline in their desirability and, consequently, their market value.

For example, a property with a poorly laid out floor plan, lack of modern amenities, or insufficient space for current living standards may experience functional obsolescence. This is distinct from other types of depreciation, such as physical wear and tear, which relates to the structural condition of the property, or economic obsolescence, which pertains to external factors impacting the property's value, such as neighborhood changes. Understanding functional obsolescence is essential for appraisers to accurately assess and reflect a property's value in the current market context.