Functional and economic obsolescence are both types of what?

Functional and economic obsolescence are both types of depreciation associated with real estate. Depreciation, in this context, refers to the reduction in value of a property over time due to various factors impacting its desirability or usability.

Functional obsolescence occurs when a property is designed or constructed in a way that does not meet current market demands or standards, leading to a decrease in its value. This can result from outdated features, poor design, or an inefficient layout that fails to accommodate modern needs.

Economic obsolescence, on the other hand, results from external factors that affect a property's value. This can include changes in the surrounding area, such as the decline in neighborhood desirability, the construction of undesirable elements nearby (like factories or highways), or macroeconomic factors like economic downturns affecting local real estate markets.

Recognizing these types of obsolescence is crucial for appraisers and real estate professionals, as they can have a significant impact on property valuation and investment decisions. Understanding depreciation helps in more accurate property assessments and predictions about future values, which are essential in the real estate market.