What is defined as "external obsolescence"?

External obsolescence refers to the loss of value of a property caused by factors outside of the property itself. This can occur due to various external influences such as changes in the surrounding area, economic downturns, environmental issues, or even social and governmental changes. For instance, if a factory moves into a residential neighborhood, it may lead to noise and pollution, adversely affecting property values without any physical changes to the properties themselves.

Understanding external obsolescence is crucial for appraisers as it can significantly impact a property's market value. Factors causing external obsolescence are often beyond the control of the property owner, which differentiates it from other forms of depreciation like physical deterioration, which involves the actual condition and upkeep of the property. Recognizing these external influences allows appraisers to provide more accurate valuations and assist property owners in understanding the impacts on their investment.