What is a loss of value due to the inability of improvements to perform their function?

Functional obsolescence refers to a loss of value that occurs when a property or improvement does not effectively fulfill its intended purpose, often due to outdated features or design that are no longer desirable or efficient. This can occur in various scenarios, such as when a building's layout becomes impractical for current usage, or when certain technological updates render the current systems less desirable.

For instance, an older home with a poorly designed kitchen that lacks modern conveniences may experience functional obsolescence because homebuyers today expect features that make daily cooking and entertaining more efficient. This type of obsolescence reflects the changes in consumer preferences and advancements in technology that render certain property improvements less valuable.

In contrast, economic obsolescence typically arises from external factors affecting a property's value, such as changes in the surrounding neighborhood or economic conditions. Physical deterioration relates to the physical wear and tear of a property over time. Market value decline is a broader term reflecting a decrease in worth due to various factors, not specifically tied to the functionality of the improvements.