FUNCTIONAL AND ECONOMIC OBSOLESCENCE

Definitions of Functional and External Obsolescence

Functional Obsolescence: A loss of value due to characteristics inherent within the property. It is a loss in value resulting from defects in design or caused by changes that, over time, have made some aspect of a structure, such as its materials or design, obsolete by current standards. The defect may be curable or incurable. To be curable, the cost of replacing the outmoded or unacceptable aspect must be the same as or less than the anticipated increase in value. Curable functional obsolescence is measured as the cost to cure the condition. Incurable functional obsolescence may be caused by a deficiency or a superadequacy.

Examples:

Excessive or deficient floor load capacity.

· Deficient storage space.

· Poor heating, lighting or air conditioning system.

· Inadequate parking or loading facilities.

· Multiple floors in a manufacturing facility inhibiting efficient manufacturing process.

· Poor design - low or excessive ceiling height.

· Insufficient elevator service.

External Obsolescence: a loss of value due to forces outside the boundaries of the property. The diminished utility of a structure due to negative influences from outside the site, is incurable. External obsolescence can be caused by a variety of factors such as, neighborhood decline, the property’s location in a community, state or region, or market conditions.

Examples:

Zoning laws that affect use or operation of the property.

· Lack of need for this property due to changing economic conditions.

· A well kept house located on commercial zoned land.

· Oversupply of a certain property, resulting in a large number of vacancies.

· A very large house located in a small residential neighborhood.

· A house located on or near a busy street or highway.

General areas to be considered by the appraiser in making a determination for either type of obsolescence include:

· suitability or appropriateness

· comfort

· efficiency

· safety

· security

· accessibility

· ease and cost of maintenance

· market standards

· attractiveness

· profitability

DEFINITION OF PHYSICAL DEPRECIATION

Physical depreciation is a reduction in utility due to the chemical and mechanical breaking down of improvements due to use, weathering, damage pest or insect infestation, and deferred maintenance. Physical deterioration may be subdivided in curable and incurable components.

Curable physical depreciation is deterioration that a prudent buyer would plan to correct upon purchase of the property, and the cost of making the correction would be no more than the increase in the present worth associated with the cure. Curable physical deterioration is usually measured by the cost to cure and subtracted from the cost new. Examples of a physical deterioration include such repairable or replaceable items as worn-out roofing, broken window panes, or soiled or peeling paint.

Incurable physical depreciation is deterioration which, in terms of market conditions on the date of the appraisal, a prudent buyer would not feasibly or economically be justified in correcting. The test is not physical but rather economic feasibility. In other words, if the cost of correcting the condition is greater than the anticipated increase in present worth, incurable physical depreciation is present.


	· suitability or appropriateness
	· comfort
	· efficiency
	· safety
	· security
	· accessibility
	· ease and cost of maintenance
	· market standards
	· attractiveness
	· profitability