What is "economic obsolescence" in real estate valuation?

Economic obsolescence refers to the permanent reduction in property value caused by external factors beyond the owner's control. These factors can include changes in the surrounding economic environment, such as the decline of a nearby industry, an increase in crime rates in the area, or shifts in zoning regulations that negatively impact the property's desirability. Unlike physical or functional obsolescence, which arises from issues directly related to the property itself, economic obsolescence is rooted in broader market or societal trends.

This concept is crucial for real estate valuation because it highlights how external conditions can irreversibly affect property values, reflecting the importance of considering regional and economic dynamics when assessing a property's worth. Understanding economic obsolescence helps appraisers and investors make more informed decisions regarding property investments and valuations.