What does functional obsolescence refer to?

Functional obsolescence refers to a reduction in a property's usefulness or desirability due to outdated design or features that no longer meet the current market demands or standards. This can occur in residential or commercial properties when aspects like floor plans, layouts, or systems become less appealing or effective over time, making the property less competitive in the real estate market.

For instance, a home with a layout that lacks an open floor plan might be less desirable compared to newly built homes that offer modern designs. Additionally, outdated amenities such as a lack of central air conditioning or absence of energy-efficient appliances can contribute to functional obsolescence, impacting the property’s value negatively.

Understanding functional obsolescence is critical for real estate professionals as it helps in assessing a property's marketability and determining appropriate pricing strategies.