What does "functional obsolescence" refer to in property valuation?

Functional obsolescence refers to a decrease in property value that occurs due to the property's outdated features or design. This concept is crucial in property valuation as it highlights how certain characteristics of a property may become less desirable or less useful over time, leading to diminished demand and thus reduced value.

For instance, a home might have an outdated layout with small rooms that are not conducive to modern living preferences, or it may lack contemporary amenities that buyers expect in a property today. Such features may render the property less competitive in the market, ultimately affecting its appraised value.

Understanding functional obsolescence is important for valuers when estimating a property's worth, as it helps to identify specific attributes that may detract from the overall market appeal and can guide potential renovations or improvements to enhance the property's value.