Which type of obsolescence refers to a decrease in property value caused by external factors?

Economic obsolescence refers specifically to a loss of property value that arises from external factors affecting the market or the surrounding area rather than from issues within the property itself. These factors can include changes in local zoning laws, an increase in traffic congestion, a decline in neighborhood conditions, or the presence of unwanted developments nearby (such as a landfill or a factory).

This type of obsolescence is often beyond the control of the property owner and is typically reflected in reduced demand for the property. Recognizing economic obsolescence is crucial for real estate professionals when assessing property values, as it influences investment decisions and strategies for mitigation. Other forms of obsolescence, like physical obsolescence, relate to the physical condition of the property, while functional obsolescence concerns inefficiencies within the property itself, neither of which involve external conditions that affect value in the same way.