Glossary of Terms
Functional obsolescence is a loss in property value caused by a deficiency or superadequacy within the structure itself, rather than external market forces or physical deterioration. It reflects features that are outdated, inefficient or no longer aligned with current buyer expectations.
Common examples include outdated floor plans, insufficient electrical capacity, lack of adequate bathroom count or oversized improvements that exceed what the market typically demands for that property type. Obsolescence can be curable — when the cost to remedy the deficiency is justified by the resulting value increase — or incurable, when correction is not economically practical.
In appraisal practice, identifying and quantifying functional obsolescence requires market evidence, not assumption. Appraisers must support any deduction with data reflecting how buyers actually respond to the deficiency. For loan originators and valuation reviewers, unexplained or unsupported functional obsolescence adjustments are a common appraisal deficiency worth flagging during review.