Legal Definitions - external obsolescence

External obsolescence refers to a loss in a property'svalue due to factors that are entirely outside the property itself and typically beyond the owner's control. These external factors negatively impact the property's desirability, utility, or income-generating potential, leading to a reduction in its market value.

Here are some examples illustrating external obsolescence:

• Imagine a charming family home that suddenly finds its value significantly reduced because a new, large-scale waste processing facility is constructed on an adjacent parcel of land. The facility brings increased truck traffic, potential odors, and noise pollution to the immediate area, making the once-desirable residential neighborhood less appealing to potential buyers. This is an example of external obsolescence because the decline in the home's value is caused by an undesirable development outside its property lines, which the homeowner had no control over.

• Consider a retail storefront located in a bustling downtown area. Over several years, a major anchor store in the same shopping district closes, and several smaller businesses follow suit. Concurrently, a new, modern shopping mall opens on the outskirts of town, drawing away much of the foot traffic and customer base from the traditional downtown area. The retail storefront, despite being well-maintained internally, experiences a sharp drop in its market value and rental income potential. This illustrates external obsolescence because the loss in value is due to a shift in the broader retail market and the decline of the surrounding commercial environment, rather than any physical deterioration or functional issues with the storefront itself.

• A large office building was constructed in a city where a major corporation was the primary employer, occupying a significant portion of the city's commercial real estate. If that corporation decides to relocate its headquarters and most of its operations to another state, the demand for office space in the original city could plummet. Even if the office building is modern and well-maintained, its value would likely decrease substantially due to the sudden surplus of available office space and the diminished economic activity in the area. This is external obsolescence because the value loss stems from a significant economic shift and a reduction in market demand driven by factors external to the building itself.