What is functional obsolescence?

Functional obsolescence refers to a reduction in the value of a property because its features or design have become outdated or flawed compared to current market standards. This concept highlights how changes in consumer preferences and technological advancements can render certain aspects of a property less desirable or less functional. For instance, a home that lacks modern amenities such as open floor plans, energy-efficient features, or updated kitchen designs may experience functional obsolescence.

This type of obsolescence is distinct from physical depreciation, which is related to wear and tear over time, or from external factors such as location changes or competition in the market. Instead, functional obsolescence arises from the property itself and is often remedied through renovations or updates that bring the property in line with current market preferences. By recognizing functional obsolescence, appraisers can better assess a property's true market value and advise owners on potential improvements.