What is Economic Obsolescence (Real Estate)?
Economic obsolescence refers to the loss of value of a real estate property due to factors that are external to the property. Common causes of economic obsolescence include a change in aircraft flight patterns, increased crime rates, construction of a busy highway, construction of a landfill nearby, etc.
What is economic obsolescence in real estate?
Economic obsolescence (EO) is the loss of value resulting from external economic factors to an asset or group of assets.
What does obsolescence mean in real estate?
Functional obsolescence in real estate describes a property that has decreased in desirability or functionality due to an outdated design feature, physical deterioration, or undesirable external factors.
What are the types of obsolescence in real estate?
There are three types of obsolescence or flaws that cause properties to lose value:
- Functional Obsolescence: …
- Economic Obsolescence: …
- Physical obsolescence:
What is an example of economic external obsolescence?
External Obsolescence is a form of depreciation caused by factors not on the property itself, such as environmental, social, or economic forces. An example would be a very nearby garbage dump. The homeowner cannot reverse this loss in value by spending money to fix something.
What is the meaning of obsolescence in accounting?
Obsolescence is a notable reduction in the utility of an inventory item or fixed asset. The determination of obsolescence typically results in a write-down of the inventory item or asset to reflect its reduced value.
What are the 3 types of obsolescence?
Obsolescence is the term used to refer to something that is either out of date, or no longer in line with market requirements. As it relates to a commercial real estate investment, there are three types of obsolescence: functional, economic, and physical.
What is an example of obsolescence?
Examples of Functional Obsolescence
Within the technology industry, the constantly changing parade of smartphones and the evolution of smartphone technology is another example of functional obsolescence. New smartphones are able to do more and include more features that make old ones functionally obsolete.
Which is the best example of functional obsolescence?
Functional obsolescence occurs when an asset becomes less useful or desirable due to an outdated design that can’t easily be updated or changed. (Tweet this!) In recent decades, functional obsolescence is most often the result of new technology; a good example is VHS videotape.
Which of the following would be the best example of functional obsolescence?
Which of the following is the best example of functional obsolescence? Old fashion architecture such as massive cornices, would be classified as functional obsolescence.
What is mechanical obsolescence real estate?
In real estate, functional obsolescence refers to the diminishing of the usefulness of an architecture design such that changing it to suit current real estate designs is almost impossible.
What does blockbusting mean in real estate?
Blockbusting is a method of manipulating homeowners to sell or rent their homes at a lower price by falsely convincing them that the neighborhood’s socioeconomic demographic is changing because of new groups of people moving in and that this shift will affect the value of their home.
What causes building obsolescence?
A key factor that causes obsolescence is a shift in technology or product design. When new components come to market, older parts become less useful and are usually designed out of a product or the manufacturing process. Likewise, rapidly changing technology in equipment also causes obsolescence.
What is economic base real estate?
Economic Base Analysis. Used to understand the extent and nature of the local economy and to generate primary data for real estate market research. An area’s economic base consists of the industries and economic activities that generate employment and income in the area.
What does external obsolescence mean in real estate?
The Dictionary of Real Estate Appraisal, sixth edi- tion, defines external obsolescence as a type of. depreciation; a diminution in value caused by. negative external influences and generally incur- able on the part of the owner, landlord, or.
What is obsolescence in property management?
Obsolescence as a process is described as the growing divergence between the declining performance of buildings and the rising expectations of users and proprietors. Obsolescence is often regarded as the start of the end- of-life phase of buildings.
What is the meaning of obsolescence in business?
Obsolescence risk is the risk that a process, product, or technology used or produced by a company for profit will become obsolete, and thus no longer competitive in the marketplace. This would reduce the profitability of the company.
What is obsolescence short answer?
Obsolescence is the state of being no longer needed because something newer or more efficient has been invented.
What is a synonym for obsolescence?
Synonyms & Near Synonyms for obsolescence. antiquation, datedness, obsoleteness, old-fashionedness.
What is a Superadequacy in real estate?
Per The Dictionary of Real Estate Appraisal, 6th Ed., superadequacy is defined as an excess in the capacity or quality of a structure or structural component; determined by market standards. Superadequacy is a type of functional obsolescence, as the structure or one of its components is at a greater capacity or …
What does regression mean in real estate?
The principle of regression is a term used by real estate appraisers stating that the value of high-end real estate may be diminished by having lower-end properties in the same vicinity. This principle is used frequently in writing zoning laws, which strive to keep business and residential areas separate.
What does incurable mean in real estate?
Dictionary of Real Estate Terms: incurable depreciation or obsolescence. incurable depreciation or obsolescence. a defect that cannot be cured or that is not financially practical to cure; a defect in the bone structure of a building.
What was the first example of planned obsolescence?
The best and possibly first example of planned obsolescence is a conspiracy agreed to by the major light bulb manufacturers of the early 20th century. They were called the Phoebus cartel and they colluded to purposefully reduce a light bulb’s lifetime to 1,000 hours by the mid-20th century.
What is product obsolescence in marketing?
Product obsolescence refers to the time and state in which a piece of technology or product ceases to be useful, productive or compatible. Product obsolescence may occur when a company stops producing, marketing or supporting a sold or developed product.
What is the effect of obsolescence?
Hence, that depreciation should be considered as the effect of obsolescence and obsolescence is the cause of depreciation. The study found that not all types of obsolescence cause depreciation of rental on office building u that legal obsolescence will not affect the service life of the building.
What is highest and best use in real estate?
The definition of highest and best use is as follows:
The reasonable, probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value.
What is NOI in real estate terms?
Net operating income (NOI) is a calculation used to analyze the profitability of income-generating real estate investments. NOI equals all revenue from the property, minus all reasonably necessary operating expenses.
What is depreciation obsolescence?
Within the real estate sector, depreciation and obsolescence are related to asset quality. It follows that higher quality represents a barrier to depreciation and obsolescence. … The value of their commercial real estate decreases due to some form of obsolescence. Depreciation is a loss in the value of use of the asset.
How do you find functional obsolescence?
Calculating Functional Obsolescence in Cost Approach
Regarding a functional obsolescence deficiency that lacks something, the calculation is the difference between the reproduction cost with the curable item and without it, as of the date of appraisal. Note that this is reproduction cost and not replacement cost.
What is the major difference between an estate for years and an estate from period to period?
Estate for years An agreement that permits occupancy between two specified dates, at the end of which the property must be vacated. Estate from period to period This applies to a monthly tenancy that has no specified end date. A party must give notice to end the agreement.
What is meant by functional obsolescence could a new building suffer from functional obsolescence?
-Functional obsolescence refers to a building’s loss in value resulting from changes in tastes, technical innovations, or market standards.
What is technology obsolescence?
When a technical product or service is no longer needed or wanted even though it could still be in working order. Technological obsolescence generally occurs when a new product has been created to replace an older version.
What is an example of locational obsolescence?
Examples of Locational Obsolescence
Building a property close to busy roads subjects the residents to traffic congestion, which may disrupt the travel schedules of most residents. Busy residents avoid such areas and this results in low demand for homes in specific locations.
What is another name for blockbusting?
Blockbusting Synonyms – WordHippo Thesaurus.
What is another word for blockbusting?
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What is redlining and blockbusting?
blockbusting. An illegal practice in which licensees or others encourage homeowners to sell because of an influx or expected influx of minorities into the area. redlining. The practice of a lender to refuse to lend in a specific area, often based on the minority makeup of the area.
What is redlining in real estate?
Redlining is the name given to a discriminatory lending practice dating back to the 1930s when lenders would draw red lines on maps around neighborhoods that were predominantly Black as a way to deny a mortgage, claiming it was high risk.
What is obsolescence in construction?
Economic obsolescence is a function of appreciation rather than depreciation: a building becomes economically obsolete not as a result of the existing structure, but through enhancement of the development potential of the underlying land. The building value decreases over time due to obsolescence.
What is the difference between functional and external obsolescence?
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.
What is obsolescence in buildings?
Obsolescence is a decline or loss of utility of an object, building or product. Different types of building obsolescence decrease buildings’ utility and shorten their service life.
What is an economic base example?
The term ‘economic base’ refers to companies and other employers that generate lots of jobs in a local or regional area. We also call them basic industries. They also bring in income from outside the local area. These employers are usually companies but may also include the government and civil service departments.
What is economic base theory?
Economic base theory is the notion that a region’s economy is divided into two sectors the base and non-base sectors. … It has several advantages as an explanation for how the economy works, and how a region can generate prosperity, and it is easy to explain in a nontechnical way.
What is economic base model?
Economic base models focus on the demand side of regional economic growth and often result in a short-run view of urban development. Focusing too much on the immediate growth potential can lead to a lack of development in industries that may take more time and investment to develop in the area.
How do you calculate external obsolescence?
You can calculate obsolescence by taking the difference between reproduction cost new, $2000+, and replacement cost new, $100, which comes to $1900. Another example of this can be seen with multi-story manufacturing buildings.
Is external obsolescence curable?
External Obsolescence: a loss of value due to forces outside the boundaries of the property. The diminished utility of a structure due to negative influences from outside the site, is incurable.
Is planned obsolescence?
What Is Planned Obsolescence? Planned obsolescence describes a strategy of deliberately ensuring that the current version of a given product will become out of date or useless within a known time period. This proactive move guarantees that consumers will seek replacements in the future, thus bolstering demand.
What is reproduction cost in real estate?
Reproduction Cost- the estimated cost to construct, as of the effective appraisal date, an exact relica of the building being appraised, insofar as possible using the same materials, construction standards, design, layout, and quality of workmanship, including all the deficiencies, super-adequacies, and obsolescence of …
What is the cost approach in real estate?
The cost approach is a real estate valuation method that estimates the price a buyer should pay for a piece of property is equal the cost to build an equivalent building. In the cost approach, the property’s value is equal to the cost of land, plus total costs of construction, less depreciation.