Many properties can exhibit some form of obsolescence – either functional, external or both. Don’t know what that it means? You’re not alone. Real estate classes often dart past these terms because real life situations that occur nationwide are difficult to cite. Yet as an appraiser I encounter homes with one or more of the following examples every week.
External Obsolescence
Easier to explain and observe, external obsolescence refers to an undesirable factor outside the property and is generally not curable. This can include:
- Highways: Unless you’re a NASCAR fan, having traffic buzz past your front yard at 55 mph isn’t the most desirable situation.
- Power Lines: Not the small feed directly to a home, but rather the high voltage towers that supply an entire town. Even if you don’t believe scientific studies they’re still unsightly.
- Commercial Buildings: Gas stations, shopping malls, 24 hour pharmacies – generally any business with non-neighborhood traffic.
- Railroad: Similar to highway traffic but without the NASCAR effect.
Functional Obsolescence
This occurs when the interior of a property suffers from reduced usefulness. It can be cured as long as the cost is less than the added value.
- Odd Floorplan: I inspected a single family home recently that had no bedrooms and only a half bath above grade. There was a room with a bed but it lacked a closet. That room was only accessible through another den, which in itself was only accessible through the half bathroom. Can you say ‘remodel gone horribly wrong?’ Plus the only shower in the home was in the lower level laundry room, which had a sink but no toilet so it wasn’t considered a bathroom.
- One Bedroom: A condo in a building where many units have one bedroom doesn’t apply. But a one bedroom single family home in an area where others have 3 or 4 is not typical.
- One Bathroom: Again, this might be ok for a property with only two bedrooms. However, just imagine the joy of getting ready in the morning when you share the 1 bathroom with 10 people.
- Poor Design: Many 100+ year old homes have character but often lack amenities of newer construction. Small closets, only 4 kitchen cabinets, the kitchen sink not actually IN the kitchen but around the corner in the laundry room. Unfortunately not only did I see this house – I purchased and lived in it for three years.
While functional obsolescence is a real thing, it can be easily overlooked by someone who doesn’t live in the home. It’s also more difficult to find a similar comparable for an appraisal or market analysis.
Can you think of another example of external or functional obsolescence?
