Functional obsolescence vs. External obsolescence

Obsolescence is a cause of depreciation in a property. A loss in value resulting from some internal (i.e., functional) factor (e.g., poor design, outdated equipment) as opposed to an external factor (e.g., neighborhood change, highway relocation).

Functional obsolescence is a loss of value due to some structural defect such as outmoded plumbing or inadequately designed fixtures. An example of functional obsolescence is one bathroom in a 12 bedroom house.

External obsolescence is the diminished utility, or loss in value, from causes in the neighborhood but outside the property itself, such as a change in zoning, loss of job opportunities and other external detrimental conditions.