What is the role of economic obsolescence in property appraisal?

Economic obsolescence plays a significant role in property appraisal as it captures the impact of external factors on the value of a property. This type of obsolescence arises when a property suffers a loss in value due to circumstances outside of its control, such as changes in the economy, neighborhood, or even regulations. Factors contributing to economic obsolescence include increased competition, demographic shifts, or the deterioration of the surrounding area, which can influence desirability and functionality.

Understanding economic obsolescence is crucial for appraisers since it can significantly affect the overall valuation process. By recognizing how external elements impact a property’s marketability, appraisers can more accurately determine a property's worth and assess the factors that could hinder its value in the long term. This understanding ultimately helps in giving a more precise appraisal and informs potential buyers or investors about the risks associated with the property.