What does functional obsolescence refer to in property valuation?

Functional obsolescence in property valuation specifically refers to a decrease in a property's value due to features that are considered outdated or no longer desirable in the current market. This can occur when the design or configuration of a property does not meet the expectations or needs of potential buyers or tenants. For example, a home with only one bathroom in an area where three or more are common may be viewed as functionally obsolete, which leads to a reduction in its market value compared to more appropriately designed homes.

This concept is distinct from physical wear and tear, which pertains to the material deterioration of the property's structure itself. It also differs from market conditions, which involve external economic factors that influence property values, and location-related disadvantages that reflect the general business or lifestyle appeal of a property’s geographic area. Thus, the correct identification of functional obsolescence as a loss of value due to outdated features helps clarify its unique role in property valuation.