What is the meaning of functional obsolescence?

Functional obsolescence refers specifically to a loss in value that arises due to changes in tastes, preferences, or technology that renders a property less desirable than it was previously. This can happen when a property's design becomes outdated or when it lacks features that are now considered standard due to advancements in technology or shifts in consumer expectations. For example, if a home has a layout that is no longer favored—such as a lack of an open floor plan or insufficient bathrooms—it may become less appealing to potential buyers, leading to a depreciation in its market value.

The concept of functional obsolescence highlights the importance of keeping properties updated to meet the current demands of the market, as well as recognizing that societal trends heavily influence real estate values. This type of obsolescence is distinct from the aging of the property itself, external economic factors, or damages caused by natural disasters, which fall under different categories of property depreciation.