What Does Functional Obsolescence Mean?

An older home can be a bargain, depending on how much work and money you put into it. Understanding functional obsolescence can help you get the most value for your money.

Professional real estate appraisers value properties in two parts—land value and structural enhancements, such as a house. When the home’s design and technologies are too outdated, the house is functionally obsolete and requires renovations. In worse cases, the structure’s condition has deteriorated to the point where the property’s value is only in the land, also known as “lot value.” This generally means the house is a tear-down, and a new structure can be built in its place. However, you can inadvertently create functional obsolescence when you over-improve a home for the surrounding neighborhood or install features that homebuyers don’t like or want, also known as superadequacy.

Before you buy an older home that needs either work or demolition, ask your Berkshire Hathaway HomeServices network professional for advice. They’ll show you market trends, neighborhoods and homes that will support the improvements you want to make.