What does "functional obsolescence" signify in real estate?

Functional obsolescence refers to a decline in property value that occurs due to certain features of the property becoming less desirable or outdated in comparison to current market preferences. This can occur when a property has design elements, amenities, or layouts that do not meet contemporary standards, leading potential buyers to view the property as less valuable. For example, a house with a choppy floor plan, outdated kitchen, or an inadequate number of bathrooms for modern family needs may experience functional obsolescence.

The rationale behind this concept is that as buyer preferences evolve, a property that was once seen as appealing can lose its luster if it does not adapt to those changing demands. This distinguishes functional obsolescence from other types of obsolescence, which may not necessarily be related to the property’s inherent features but rather to external factors or maintenance issues.