How is "economic obsolescence" defined in appraisal?

Economic obsolescence refers to a loss in property value that is attributable to external factors rather than internal or inherent issues with the property itself. This type of obsolescence often arises from changes in the surrounding environment, such as shifts in the local economy, the decline of nearby neighborhoods, or changes in regulations that negatively impact property desirability. For example, if a factory moves into a previously residential area and generates noise or pollution, properties in that vicinity may experience decreased values due to the unfavorable external conditions.

Understanding economic obsolescence is crucial for appraisers, as it helps them accurately assess the value of a property considering its context within the broader market and environment. By differentiating between internal conditions (like physical wear and tear or poor management) and external factors, appraisers can provide a more comprehensive and precise valuation that better reflects market realities.