What is functional obsolescence?

Functional obsolescence refers to a decrease in the value of a property that occurs when it is no longer able to meet the needs of the market due to inefficiencies, outdated technology, or design flaws. This type of obsolescence typically arises from changes in consumer preferences or advancements in technology that render the existing features of a property less desirable or effective.

For instance, if a commercial property has outdated electrical systems that cannot support modern technology, or if a residential home has a floor plan that does not align with current living trends (such as a lack of open space), these factors contribute to functional obsolescence. Therefore, the property's value decreases not because of external market pressures but rather due to inherent limitations within the property itself that reduce its functionality or appeal to potential users or buyers.