What defines Economic or External Obsolescence?

Economic or external obsolescence refers to a reduction in property value caused by factors outside of the property itself. This type of obsolescence is typically influenced by external circumstances such as changes in the economy, shifts in neighborhood dynamics, environmental issues, or the development of undesirable surroundings like noise, pollution, or increased crime rates.

For instance, if a once-desirable neighborhood begins to decline due to the construction of a factory that emits pollutants or an influx of commercial development that detracts from the residential atmosphere, properties in that area may experience an economic decrease in value. This form of obsolescence is distinct from others because it stems from external influences rather than the physical condition or quality of the property itself. Understanding this concept is essential for appraisers when evaluating property values in relation to the broader economic landscape.