Have you read an appraisal report and seen that the real estate appraiser commented that the property suffers from functional obsolescence? When evaluating real estate, one often overlooked but critical factor that can significantly affect a property’s value is functional obsolescence. This term refers to a decline in a property’s appeal or usefulness due to outdated design elements, technology, or layout, especially when compared to more modern homes or commercial spaces.
Functional obsolescence is not necessarily about a building being old. It refers to whether the property meets the expectations and needs of today’s buyers or tenants. Even a relatively new property can experience functional obsolescence if its design or features no longer align with current trends or standards.
There are two main categories of functional obsolescence: curable and incurable.
Curable Functional Obsolescence
Curable obsolescence involves issues that can be resolved or improved with a reasonable investment. These are typically cosmetic or design-related deficiencies that can significantly enhance the property’s marketability and value.
Common Examples Include:
- Outdated kitchens or bathrooms that can be remodeled.
- Inadequate lighting that can be improved with modern fixtures.
- Old HVAC or electrical systems that can be upgraded to meet current codes and energy efficiency standards.
- A temporary wall that as erected to make two small bedrooms out of one large bedroom.
Incurable Functional Obsolescence
In contrast, incurable obsolescence refers to shortcomings that are either too expensive or physically impractical to correct. These limitations often stem from structural design choices or external factors that can’t be easily changed.
Common Examples Include:
- An undesirable floor plan that would require extensive reconstruction to be fixed.
- Insufficient parking for a commercial property which limits its usability.
- Railroad style rooms.
- A single bathroom off the kitchen when all bedrooms are on the second floor.
- A captive bedroom.
Recognizing the impact of functional obsolescence is crucial for anyone involved in real estate, whether you’re buying, selling, or investing. For buyers, it can highlight potential renovation opportunities or red flags. For sellers, it helps set realistic expectations about market value and necessary improvements. And for investors, it’s a key factor in assessing long-term profitability.
If you have questions about how functional obsolescence can affect a property, don’t hesitate to reach out to our team at The Jordan Real Estate Group. We’re here to provide the insights and support you need to navigate your real estate transactions with confidence and clarity.
