What is Functional Obsolescence?

What Is Functional Obsolescence?

What is Functional ObsolescenceYou may never have heard the phrase “Functional Obsolescence” before but I’ll bet you’ve seen it. Today we’re going to take a look at a common flaw in homes that can negatively affect their value.

The textbook definition (from the Dictionary of Real Estate Appraisal, 5th Edition) states that functional obsolescence is:

“The impairment of functional capacity of a property according to market tastes and standards.”

Other industry books explain that functional obsolescence can be caused by either a “deficiency or superadequacy” and may be curable or incurable. In simple layman speak what this means is that the house has a lack of something or too much of something which may be able to be cured, or fixed, thereby eliminating the problem.

Examples Of Functional Obsolescence

So let’s take a look at some examples of functional obsolescence that you may have seen but wasn’t sure what to call it. Have you ever seen a house that has a bedroom that you access by going through another room?

Yep, that is functional obsolescence. Most people would find that to be less desirable because of privacy and the fact that people sleeping in the room would be disturbed by others passing through.

I got a call this week from an agent that illustrates another example of functional obsolescence. The agent was selling a home where the owners had added on to the original structure of the residence.

They had built what we typically call a “mother-in-law quarters”. The thing about it though was that access to this new addition required you to go through the garage to get to it.

If you’ve read any of my other blog posts about square footage in a home you will know that this is a big no-no if you want it to be included in the total gross living area (GLA) of the home. ANSI measurement standards state that for an area to be included it has to have access through the heated and cooled living area of the main residence.

Depending on the extent of living area this additional space is sometimes referred to as an accessory dwelling unit (ADU). This area will contribute to value but it may be at a different rate than the main living area. There may be a premium in some areas but in others, it may not contribute as much to the overall value of the property.

How It Affects The Homeowner

In my experience whenever homeowners make changes to their homes they have an idea in mind of how they want it to be. They make alterations that fit their needs and the changes can become very personalized.

They often don’t think through what creates a functional layout for the home. As long as their needs are met they are happy but in reality, they should also consider what is acceptable to other buyers should they have to sell in the future.

A simple example of this is including an office in a newly built home that does not have a closet. While they may primarily use the room as an office they should also consider how a future purchaser may use it. If you add a closet when it is being built the cost of construction doesn’t change much but it will provide better utility if it can also be used as a bedroom because of the closet.

In the example above, where the owners had built mother-in-law quarters, the addition would have contributed more value if they would have provided better access to the second living area by way of the main residence rather than going through the garage.

What To Do About It

These flaws in the floor plan negatively affect the market value of the home because the floor plan is inferior to what is expected. It is best to consider market expectations when remodeling so that the floor plan is acceptable to a larger percentage of people as this will maximize its value.

Homeowners can be proactive when either building a home or making renovations to their current one. To receive the highest appraisal all ancillary living areas should be adjacent to the main residence with interior access by way of a finished heated and cooled area.

In regards to the example given to me by the agent, if it is possible to add a hallway to the mother-in-law quarters then ALL of the space can be included in the gross living area and it will get maximum value.

Whenever building new construction it would be wise to add closets to all rooms that could be used as bedrooms. Even if it will be used as an office by the current owners, you can call it a bedroom because of the closet.

With some floor plans, it may not be possible to fix the problem. Some pass through bedrooms cannot be fixed and the room may not be considered a bedroom. This is known as incurable functional obsolescence.

Conclusion

These are just a few examples of functional obsolescence and there are others that I have not covered. Some are curable and some are not. If possible the best time to address the issue is when a home is constructed but if that is not possible then it should be corrected as soon as possible so that the market value of the property is maximized.

If you have any questions about functional obsolescence feel free to comment below and I’ll do my best to answer them for you. As always, thanks for reading.

If you liked this post subscribe by email (or RSS feed). Thanks for visiting.

Comments

  1. Randy Hilman says:

    Hi Tom. How about giving us an example of a superadequate condition contributing to functional obsolescence.

    • Hello, Randy, thanks for your question. An example of a super adequate condition contributing to functional obsolescence could be a home that has more square footage than is typical for the neighborhood but a floor plan that doesn’t benefit from the square footage. Imagine this large home only having one bedroom and one bathroom. Usually, homes that have lots of square footage also have an optimal amount of bedrooms and bathrooms. Another might be a large home that has more bedrooms than necessary but each bedroom being smaller than what is acceptable. These are some I thought of right off the top of my head but there could be others.

  2. Good post Tom. This is a hard area for us appraisers to measure but can be really important to marketability.

  3. Nice job Tom. This reminds me of a house I saw where there was a custom built-in spa in the master bedroom. The construction was nice, but unfortunately it took up nearly half the room, so it presented some challenges to market the property. Granted, it was curable thankfully, but still it functionally messed with the usability of the house (or at least the master bedroom).

  4. Pierce Blitch III IFAS says:

    Very good blog. In my area, we have many older “Mill” houses that are on 25-30′ lots. There are many that it is necessary to go through bedrooms, kitchens, or dining areas to get to a bathroom or another bedroom. The market does not recognize functional obsolescence in this case. Also, in some larger and older houses, there were no closets and rooms are still classified by the market as bedrooms with no adjustment required. So, as you stated, let the market determine functional obsolescence.

    • I think I’ve heard the homes you describe as “shotgun” homes. We have those in various areas of Birmingham as well. Thanks for empasizing the point that we have to let the market dictate what drives value and what doesn’t.

Trackbacks

  1. […] What is Functional Obsolescence? – Birmingham Appraisal Blog […]

Speak Your Mind

*

Sign up and get valuable content!

  • Get local real estate market data
  • Learn valuable information from a seasoned appraiser
  • Find out what adds value to your home

I respect your privacy. Your information stays with me.