What does functional obsolescence indicate during an appraisal?

Functional obsolescence refers to a reduction in a property's value due to inefficiencies or deficiencies in its design, layout, or functionality that are not in line with current market preferences or standards. When an appraisal indicates that renovations are needed to meet these demands, it highlights that the property may possess features or configurations that are no longer desirable to potential buyers or tenants. This may include outdated room layouts, lack of modern amenities, or other characteristics that detract from the property's marketability.

This concept recognizes that even if a property is still structurally sound, it may require updates to appeal to contemporary tastes or to better serve the intended use. Therefore, identifying functional obsolescence during an appraisal helps appraisers provide a more accurate valuation by considering how the property measures up against current expectations in the marketplace.