What is external obsolescence?

External obsolescence refers specifically to a decrease in the value of a property that results from external factors, rather than from the property itself. This can include negative changes in the surrounding environment or land use, such as the construction of a new highway nearby, the opening of a factory that generates noise and pollution, or a decline in the desirability of the neighborhood due to economic downturns.

When the surrounding area changes in a way that makes a property less desirable, the property can suffer a loss in value, which is a key characteristic of external obsolescence. This loss is often beyond the control of the property owner, distinguishing it from other forms of depreciation that may be considered more controllable or inherent to the property's own age or condition.

Other concepts like physical deterioration or depreciation due to economic conditions may affect value, but they are not classified as external obsolescence. Physical deterioration relates to the wear and tear of the property itself, while economic conditions impact the market as a whole rather than the specific external influences on a single property.