What is functional obsolescence in real estate?

Functional obsolescence refers to a reduction in a property's value arising from features that are no longer considered desirable or efficient in the current market. This often occurs when a property has outdated systems, design flaws, or features that don’t meet modern expectations or standards. For instance, a home with a poorly designed layout, inadequate bathroom facilities, or a lack of modern technology may experience functional obsolescence. These outdated characteristics lead to decreased market appeal and subsequently lower value compared to other properties that are more up-to-date or functional.

In this context, the notion of "outdated features" directly aligns with the definition of functional obsolescence, illustrating how certain aspects of a property can detract from its overall value in the eyes of potential buyers. This understanding is key in real estate appraisal and valuation, as it helps identify properties that may need renovations or updates to regain or improve their market value.