What is functional obsolescence?

Functional obsolescence refers to a reduction in the value of a property due to inherent inefficiencies or inadequacies in its design or features compared to current standards. This could arise from outdated layouts, insufficient space for modern needs, or the presence of certain features that are no longer desirable or functional. For instance, a home with a poorly designed floor plan or lacking essential amenities such as an additional bathroom may experience functional obsolescence.

In this context, the answer accurately captures the essence of functional obsolescence by focusing on how improvements or aspects of the property itself can cause a loss in value, rather than external factors. Other options, while related to property value, are distinct concepts—such as diminished value due to location changes, which is more about external factors affecting desirability, or a decrease in demand for a certain property type, which relates to market dynamics rather than the property's inherent characteristics. Amortization of structural improvements pertains to the financial management of an asset rather than its value assessment, further differentiating it from functional obsolescence.