Functional obsolescence refers to a reduction in the usefulness or desirability of a property due to inherent design flaws, outdated features, or other factors that make it less competitive or functional in the current market. This concept is particularly relevant in real estate valuation and appraisal, where the value of a property is influenced not only by its physical condition but also by its functional characteristics.

Key points about functional obsolescence include:

1. **Design or Layout Issues:**
– Functional obsolescence can result from design or layout issues that make a property less functional or less desirable to current market preferences. This might include outdated floor plans, inadequate storage space, or an inefficient use of space.

2. **Technological Changes:**
– Advances in technology can make certain features or systems of a property obsolete. For example, a property with outdated electrical systems, plumbing, or communication infrastructure may experience functional obsolescence.

3. **Changes in Market Preferences:**
– Shifting market preferences and trends can render certain property features less desirable. For instance, architectural styles or design elements that were popular in the past may fall out of favor with current homebuyers.

4. **Zoning Changes:**
– Changes in zoning regulations or land-use policies can contribute to functional obsolescence. For instance, a property that no longer complies with updated zoning codes may experience a decrease in its functional utility.

5. **Economic Factors:**
– Economic factors, such as changes in the local economy or shifts in the types of businesses in an area, can lead to functional obsolescence. A property that was well-suited for a particular type of business may become less functional if the economic landscape changes.

6. **External Influences:**
– External factors, such as changes in infrastructure, transportation patterns, or neighboring developments, can impact the functional utility of a property. These external influences may affect accessibility, visibility, or the overall appeal of the property.

7. **Cost of Cure:**
– The cost of correcting or mitigating functional obsolescence, also known as the “cost of cure,” is a consideration in real estate appraisal. It involves assessing the expenses associated with modifying or upgrading a property to make it more competitive or aligned with current market demands.

Functional obsolescence is one of the three types of depreciation considered in real estate appraisal, alongside physical depreciation (related to wear and tear) and external or economic obsolescence (resulting from external factors such as changes in the local economy).

Real estate professionals, including appraisers and property assessors, evaluate functional obsolescence when estimating the fair market value of a property. Understanding the various factors contributing to functional obsolescence is crucial for property owners, investors, and real estate professionals involved in valuation and decision-making processes.