What is an example of external obsolescence?

External obsolescence refers to a loss in property value that is attributed to factors outside of the property itself. This type of depreciation often arises from changes in the external environment, such as economic shifts, neighborhood decline, or environmental issues affecting the area surrounding the property.

In the given example, a reduction in value caused by nearby environmental hazards fits perfectly within the definition of external obsolescence. Environmental hazards, such as pollution, hazardous waste sites, or industrial developments, can significantly impact the desirability of a location and, consequently, the value of the properties within that vicinity. These factors are outside the control of property owners or their properties, which distinguishes external obsolescence from other types of depreciation that are more directly related to the property itself or its physical condition.

In contrast, other options primarily relate to internal factors. The aging structure, wear and tear, and poor design features are issues that stem from the property itself and are typically categorized under physical depreciation or functional obsolescence rather than external obsolescence.