Which type of depreciation reduces a property's overall appeal due to external factors?

Economic obsolescence refers to the loss in value of a property due to factors that are external to the property itself, often driven by changes in the surrounding environment or market conditions. These factors can include things like increased crime rates in the neighborhood, changes in zoning laws, a downturn in the local economy, or the construction of an undesirable facility nearby, such as a landfill or busy highway.

This type of depreciation is considered "external" because it arises from influences outside the property and cannot be easily corrected through maintenance or improvement. For example, even if a house is well-maintained and modernized, the value can still diminish if the area surrounding it has become less desirable for living. In contrast, functional obsolescence is related to the property itself, such as outdated design features, and physical deterioration refers to wear and tear on the property. Market decline is a broader term and does not specifically denote the external factors affecting a single property. Thus, economic obsolescence precisely identifies the external forces that diminish a property's overall appeal and value.