How is Economic or External Obsolescence measured?

Economic or external obsolescence refers to the loss of property value due to external factors that are beyond the owner's control, such as changes in the economy, environment, or neighborhood characteristics. Measuring this type of obsolescence is often done through the capitalization of rent loss or the sales comparison approach.

When using the capitalization method, appraisers assess the decrease in property value by analyzing the difference between the expected income based on market conditions and actual income, reflecting the impact of external factors on rental rates. Similarly, in the sales comparison approach, appraisers look at recent sales of comparable properties that have been affected by similar external conditions, allowing them to quantify the loss in value attributable to economic obsolescence.

Thus, measuring economic or external obsolescence through capitalization of rent loss or sales comparison effectively provides a tangible way to gauge the financial impact of external factors on property values. Other options focus on different aspects of property value assessment, such as repairs needed or employment trends, which do not directly quantify the effect of external obsolescence on a property's value.