What is crucial to consider for Economic or External Obsolescence measurements?

Economic or external obsolescence refers to the loss of property value due to external factors outside of the property itself, typically related to the economic environment or surrounding neighborhood conditions. A significant aspect of this measurement is understanding the relationship between a property's land value and its building value, also referred to as the land-to-building ratio.

This ratio becomes crucial because if the land value is disproportionately high compared to the building value, it may indicate that external factors are negatively impacting the property, leading to a perception of declining desirability or functionality. For instance, if a property is located in a deteriorating area or if there are economic downturns affecting real estate demand, the land-to-building ratio may reflect how much the value of the land has increased compared to the building itself, suggesting potential external obsolescence.

Utilizing this ratio allows appraisers to assess whether economic conditions are unfavorably affecting a property's value, making it a vital consideration in measuring economic or external obsolescence.