Imagine owning a home you are pretty happy with. You have a beautiful two-story house in a lovely fantastic neighborhood, but…. Your home is a bit outdated. In fact, all the new homes in the neighborhood and market have at least two bathrooms, and yours only has one.
This is an example of Functional Obsolescence.
What is a Functional Obsolescence?
Definition: Refers to the loss of property value due to an obsolete design feature.
-Such as an old house with one bathroom in a neighborhood filled with new homes featuring at least two bathrooms.
-Or maybe a neighborhood filled with two-car garages, but your garage only fits one.
Because the old house does not have what buyers in this market want, it is said to be functionally obsolete even if it is still in good condition and is perfectly livable.
Some common examples of Functional Obsolescence are:
- Poor or outdated design
- Too many or too few materials or features
- Lack of utility (meaning features are not practical or desirable)
- Overly costly operating expenses
Functional Obsolescence is a form of depreciation. It commonly shows up on the real estate license exam. To read about another form of depreciation, read about Economic Obsolescence here.