What is obsolescence in property valuation?

Obsolescence in property valuation refers to the functional or economic loss of property value. This can occur for various reasons, including changes in market demand, technology, or design features that render a property less desirable or less functional. For example, if a property has outdated features that do not meet current consumer expectations, it may experience a decline in value even if the physical structure remains in good condition.

Functional obsolescence arises from issues within the property itself, such as poor layout or inadequate facilities. Economic obsolescence, on the other hand, relates to external factors, such as neighborhood deterioration or changes in the local economy that negatively impact the value of the property.

Understanding obsolescence is crucial for accurate property valuation because it highlights how factors unrelated to physical condition can influence market perception and, ultimately, value. This is why the chosen answer correctly identifies obsolescence as a type of value loss rather than a gain or a result of physical deterioration.