Functional Obsolescence is defined as "loss of value from all causes within the property except those due to physical deterioration". Huh?!
In understandable terms, Functional Obsolescence is a defect in a property that affects the property's utility. For example, there is only bathroom is located on the second floor of the house. Or perhaps the house has no formal dining room or if it does have one, it's far removed from the kitchen.
Functional Obsolescence can be either curable or incurable. It is considered curable if the amount of money invested to remedy the issue increases the market value of the property by at least that much. On the other side, it is considered incurable if the cost to remedy the issue is greater than the added value the remedy will bring.
So, what does this mean for buyers and sellers?
If you are a buyer, be aware of shortfalls in the dwelling's utility and factor in the associated costs to fix those shortfalls when making your offer. Your real estate agent or broker can connect you with the right contractors in the area in order to get an idea as to what it might cost you to address the issues, and can then help determine if your return on investment will be worth it.
If you are a seller, you need to be aware first, of the objections that may arise from potential buyers. Also, keep in mind, that you may need to lower your expectations on market price to take into account the costs that potential buyers will face in order to address the issues and alter the property to better suit their needs.
Look forward to hearing your additional thoughts.
Be well,
Rhonda