What is the significance of functional obsolescence in appraisal?

Functional obsolescence is a critical concept in real estate appraisal because it highlights how certain characteristics of a property can lead to a reduction in its value. The correct answer emphasizes that functional obsolescence often occurs when a property's design, layout, or features become less desirable or efficient compared to current standards or expectations. For example, a home with an awkward floor plan or outdated amenities may struggle to attract buyers, as they may prefer more modern or functional alternatives.

This phenomenon captures the economic impact of a property's inherent attributes, distinguishing it from other forms of value loss, such as external obsolescence (influences from outside the property) or physical deterioration (age-related wear and tear). Understanding functional obsolescence allows appraisers to make more accurate assessments and adjustments in property valuation, ensuring that any depreciation related to design and usability is appropriately accounted for.