What does external obsolescence refer to in real estate?

External obsolescence refers to a decline in property value that occurs due to factors outside of the property itself. This can include a variety of influences such as economic downturns, changes in zoning laws, the deterioration of the surrounding area, or increased crime rates. These factors can negatively impact the desirability of a location, leading to a decrease in property values regardless of any improvements or upkeep done to the property.

Understanding this concept is crucial for real estate professionals because it highlights the importance of external conditions in assessing property value, which may not be immediately obvious from the property's physical characteristics or management practices. For instance, a well-maintained property can still lose value if the neighborhood experiences significant decline. This distinction helps in making informed investment decisions and evaluating potential risks associated with a property.