What does functional obsolescence refer to in property valuation?

Functional obsolescence is a term used in property valuation to describe the loss in value that a property experiences due to changes in market demands or preferences. This concept indicates that a property may have outdated features or designs that no longer align with current buyer expectations or needs. For instance, a home with a layout that was once popular but is now considered impractical, such as a lack of open spaces or insufficient bedrooms for modern families, would be experiencing functional obsolescence. It reflects how a property can become less desirable over time, even if it is still structurally sound, as a result of shifts in consumer preferences or technological advancements. This understanding is crucial for accurately assessing a property's value in the real estate market and informs decisions for renovations or updates to enhance market appeal.