What is the difference between functional obsolescence and external obsolescence?

The reason why the selection is correct lies in the definitions of both functional obsolescence and external obsolescence. Functional obsolescence pertains to the depreciation of a property's value due to outdated or less desirable features that do not meet the current expectations of buyers. This could include things like insufficient square footage, poor layout, outdated plumbing or electrical systems, or design styles that have fallen out of favor.

In contrast, external obsolescence happens due to adverse external factors affecting the property’s value, which could originate from the surrounding environment. Examples include declining neighborhood conditions, proximity to unpleasant facilities such as factories or landfills, or changes in zoning laws that negatively impact property use or desirability.

By understanding this distinction, it becomes clear why functional obsolescence and external obsolescence are not synonymous. The former is about the property's inability to meet modern requirements and expectations, while the latter is driven by external influences that are outside the control of the property owner.