Functional and economic obsolescence are types of which concept?

Functional and economic obsolescence are types of depreciation that affect the value of a property. Depreciation refers to the loss in value of an asset over time due to various factors, including wear and tear, outdated technology, or external economic conditions.

Functional obsolescence occurs when a property's design or features become outdated or less desirable, which can result from changes in market preferences or advancements in construction methods. For example, a home with a less efficient floor plan may suffer from functional obsolescence as buyers prioritize open layouts.

Economic obsolescence, on the other hand, is external to the property and arises from factors that negatively influence the property's value. This could include neighborhood decline, changes in local economic conditions, or new regulations that impact the property's desirability.

Recognizing functional and economic obsolescence as components of depreciation is crucial for appraisers and real estate professionals, as it helps them determine the fair market value of a property by assessing all factors influencing its value.