What does external obsolescence refer to?

External obsolescence is a term used in real estate appraisal to describe a reduction in property value caused by external factors that are beyond the property owner's control. This may include elements such as changes in the neighborhood, economic downturns, or undesirable developments nearby, which can negatively impact the desirability and value of a property.

In this context, it encompasses influences such as pollution from neighboring facilities, increased traffic, or the decline of the surrounding area. Unlike physical depreciation, which pertains to wear and tear on the property itself, external obsolescence is focused on factors external to the property that diminish its market value.

By understanding this concept, appraisers and investors can better assess a property's worth and make informed decisions based on location and external conditions that might influence its marketability.