What does "economic obsolescence" refer to in real estate?

Economic obsolescence refers to a reduction in property value that results from external factors affecting the property or market, rather than conditions inherent to the property itself. This can include changes in local market conditions, such as a decline in the neighborhood economy, an increase in nearby industrial activity, or a shift in the overall economic climate that makes the area less desirable. Since these factors are typically outside the property owner’s control, they can lead to significant decreases in market value.

On the other hand, the other choices do not accurately describe economic obsolescence. A decline due to poor maintenance pertains to physical deterioration of the property itself, which would be classified as physical obsolescence. An increase in value due to improvements represents appreciation resulting from upgrades or renovations to the property. Lastly, a temporary decline in market demand suggests fluctuating market conditions more directly related to immediate demand rather than long-lasting economic factors. Thus, the description of economic obsolescence aligns perfectly with the concept of a loss in property value due to external economic factors.