What does the term 'functional obsolescence' refer to?

The term 'functional obsolescence' specifically refers to the loss in value of a property due to design flaws or outdated characteristics that make it less desirable to potential buyers. This condition arises when a property fails to meet the expectations or needs of the current market, possibly due to factors such as outdated plumbing, insufficient storage space, or poorly designed floor plans.

Functional obsolescence can stem from changes in consumer preferences, technological advancements, or shifts in market demand. Unlike physical deterioration, which pertains to the condition of the property itself, functional obsolescence relates directly to how well a property functions relative to current standards and buyer expectations. Therefore, the identification and correction of these issues are critical for maintaining property value in a competitive real estate market.