What does the term “functional obsolescence” refer to?

Functional obsolescence refers to a decrease in a property's value due to design features that are no longer considered desirable or efficient in the current market. This concept highlights that certain characteristics or features of a property, which may have once been viewed as advantageous, can become less appealing over time as buyer preferences change, technological advancements occur, or new building standards emerge.

For example, a home with an outdated kitchen layout that lacks modern conveniences might experience a reduction in market value because potential buyers are looking for open floor plans and updated amenities. This obsolescence occurs independently of the property's physical condition and is more about the functionality and desirability of the design elements.

Understanding functional obsolescence is crucial for appraisers as it directly impacts how property values are assessed, particularly in neighborhoods where newer construction has set different standards for desirability and functionality.