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How Functional Obsolescence in Real Estate Impact Home Values

How Functional Obsolescence in Real Estate Impact Home Values

Functional obsolescence is a concept in real estate that refers to a property’s inability to adequately perform the functions for which it was designed. Functional obsolescence can be caused by changes in technology, demographics, or market conditions. It can also be the result of poor planning or design decisions.

When considering purchasing a property, it’s important to consult with a real estate professional to get a complete picture of all the factors that could affect the value of the property.

 

What is Functional Obsolescence?

Functional obsolescence is an issue that can make a property unsaleable or sell at a discount. Functional obsolescence can be caused by technological changes, demographic changes, or poor planning/design decisions.

 

What Could Make a Property Functionally Obsolete?

Different factors can cause functional obsolescence. Some common examples include:

– Changes in technology: A property that was designed for a specific use (like office space) may become functionally obsolete if the technology changes and that use is no longer relevant (like if everyone starts working from home).

– Demographic changes: A community that was once family-friendly may become functionally obsolete if the demographics change and it becomes known as a retirement community.

– Poor planning or design decisions: A property may be Functional obsolescence can have a significant impact on home values. When considering whether to purchase a property, prospective buyers will often factor in the cost of addressing any functional obsolescence issues. If the cost of addressing these issues is too high, it could lead to the property being sold at a discount or left vacant.

 

What are the different types of functional obsolescence?

There are three different types of functional obsolescence: technological, economic, and physical.

– Curable obsolescence: Curable obsolescence is when the issue can be fixed through renovations or other changes. For example, a property with an outdated kitchen may become functionally obsolete if the trend is for open-concept kitchens. However, this type of obsolescence can often be cured by renovating the kitchen to meet the current standards.

– Incurable obsolescence: Incurable obsolescence is when the issue cannot be fixed or would be too costly to fix. An example of incurable obsolescence would be a property that was designed for specific use (like a factory) that is no longer needed because technology has changed.

– Superadequacy: Superadequacy is when a property has features that are no longer desired or needed. An example of this would be a home with too many bedrooms for the current market.

 

Can a New Home Have Functional Obsolescence?

Functional obsolescence is not just an issue with older homes. New homes can also suffer from this issue if they are not designed or built correctly. For example, a new home may be designed for a family with small children but then the family decides to not have any children. The home would then be functionally obsolete for that family.

It’s important to consult with a real estate professional when considering purchasing a property, whether it’s new or old. They will be able to identify any potential functional obsolescence issues and advise you on the best course of action.

 

How Much of an Impact Does Functional Obsolescence Have?

Functional obsolescence can have a significant impact on home values. When considering whether to purchase a property, prospective buyers will often factor in the cost of addressing any functional obsolescence issues. If the cost of addressing these issues is too high, it could lead to the property being sold at a discount or left vacant.

In some cases, functional obsolescence can be cured through renovations or other changes. However, in other cases, it may be impossible or too costly to address, making the property unsaleable. Functional obsolescence is just one factor that can impact home values. Others include location, condition, amenities, and market conditions.

 

Final Thoughts

Functional obsolescence is an important issue to consider when purchasing a property. It can have a significant impact on home values, and in some cases, the cost of addressing any issues may be too high. However, it’s important to consult with a real estate professional to get their advice on the best course of action.

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