What does the term "functional obsolescence" refer to in property appraisal?

The term "functional obsolescence" specifically refers to a reduction in property value resulting from outdated features, designs, or the inability of a property to meet current market demands. This concept highlights how changes in consumer preferences, technology, or design standards can affect a property's desirability and value.

For example, a home that lacks a modern open floor plan or has a significantly outdated kitchen may experience functional obsolescence. Even if the property is in a good location or well-maintained, its age or inefficient layout can deter potential buyers.

Functional obsolescence is an essential concept in property appraisal as it helps appraisers assess how these outdated attributes impact a property's market value. By identifying and quantifying functional obsolescence, appraisers can provide a more accurate valuation that reflects current market conditions and buyer expectations.