Many properties can exhibit some form of obsolescence – either functional, external or both. Don’t know what that it means? You’re not alone. Real estate classes often dart past these terms because real life situations that occur nationwide are difficult to cite. Yet as an appraiser I encounter homes with one or more of the following examples every week.
External Obsolescence
Easier to explain and observe, external obsolescence refers to an undesirable factor outside the property and is generally not curable. This can include:
- Highways: Unless you’re a NASCAR fan, having traffic buzz past your front yard at 55 mph isn’t the most desirable situation.
- Power Lines: Not the small feed directly to a home, but rather the high voltage towers that supply an entire town. Even if you don’t believe scientific studies they’re still unsightly.
- Commercial Buildings: Gas stations, shopping malls, 24 hour pharmacies – generally any business with non-neighborhood traffic.
- Railroad: Similar to highway traffic but without the NASCAR effect.
Functional Obsolescence
This occurs when the interior of a property suffers from reduced usefulness. It can be cured as long as the cost is less than the added value.
- Odd Floorplan: I inspected a single family home recently that had no bedrooms and only a half bath above grade. There was a room with a bed but it lacked a closet. That room was only accessible through another den, which in itself was only accessible through the half bathroom. Can you say ‘remodel gone horribly wrong?’ Plus the only shower in the home was in the lower level laundry room, which had a sink but no toilet so it wasn’t considered a bathroom.
- One Bedroom: A condo in a building where many units have one bedroom doesn’t apply. But a one bedroom single family home in an area where others have 3 or 4 is not typical.
- One Bathroom: Again, this might be ok for a property with only two bedrooms. However, just imagine the joy of getting ready in the morning when you share the 1 bathroom with 10 people.
- Poor Design: Many 100+ year old homes have character but often lack amenities of newer construction. Small closets, only 4 kitchen cabinets, the kitchen sink not actually IN the kitchen but around the corner in the laundry room. Unfortunately not only did I see this house – I purchased and lived in it for three years.
While functional obsolescence is a real thing, it can be easily overlooked by someone who doesn’t live in the home. It’s also more difficult to find a similar comparable for an appraisal or market analysis.
Can you think of another example of external or functional obsolescence?
Rob McCance
November 13, 2009 at 3:55 pm
Good post Ben.
There are geographically obsolete homes all around Atlanta, mostly west and south of the city.
The home with a small front yard, and a 4 lane highway in front of it is a classic. Not the home’s fault that the road went from a country route with one unmarked lane barely big enough for two cars, to what it currently is, but unfortunate.
I like the one with the funky interior. I’ve actually seen a few modern homes with strange things like a large room accessible only through the master bathroom, and it’s not meant to be a closet as there were three of those already.
Ever seen the upstairs walkway/hallway that terminates into a door, which is actually unfinished attic space? Not good.
Artur Ciesielski
November 13, 2009 at 5:45 pm
Sometimes these obsolete items become an asset. I had one client who had to have old steel single pane crank out windows. He passed up many awesome homes because they had new double pane high efficiency windows. But that is an outlier.
Matt Stigliano
November 13, 2009 at 6:41 pm
Rob – Here in Texas we call those doors that lead into attic space a “Texas basement.” I laughed the first time I heard it, but here in San Antonio we don’t have traditional basements, so they often build homes with those sorts of entryways to the attic to provide the same type of storage you might get with a basement.
Rob McCance
November 13, 2009 at 7:01 pm
Ahhhhh, the Texas Basement!
You Texans have the best sayings.
Greg Barnhouse
November 13, 2009 at 7:44 pm
What’s even more strange is to find in these “Texas Basements” that not only are the HVAC units up there, but quite often the water heaters are up there, too! After having lived in Colorado where there are basements and the HVAC and water heaters are down there, where there is concrete and a drain. Instead, here you will find the HVAC units between the roof trusses and water heaters sitting in a drain pan that can get clogged with loose bits of insulation and cause big nasty leaks that cause a lot of damage.
I guess each region has its own querks. . .