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What Is Functional Obsolescence?

Functional obsolescence occurs when a property or product loses value due to outdated features that cannot easily be changed or upgraded. Think of a home with one bathroom serving four bedrooms—it's not meeting modern living standards. As our needs evolve, so does the concept of functionality. What does this mean for your investments or property value? Let's examine further.
Esther Ejim
Esther Ejim

Functional obsolescence refers to a situation in which an item loses its value and does not fulfill the need at that particular time or does not fulfill the purpose that led to its creation in the first place. The term can be used in many situations where such an inference can be drawn based on an analysis of the circumstances. For example, it is often associated with real estate due to its application toward the determination of the value of the real estate under consideration. It is also used in reference to a defect in an item.

An example of the application of functional obsolescence can be seen in the case of a wallet or pouch that was created by a phone company for carrying a particular model of its phone. Assuming the company releases a new version of the phone one year later and the new version has a wider and sleeker configuration that makes it impossible for it to fit in the phone pouch, the pouch can be said to be in a state of functional obsolescence. The reason for this attribution of functional obsolescence is due to the fact that the phone pouch is not fit for the purpose of carrying the updated model of phone.

Man climbing a rope
Man climbing a rope

Another application of functional obsolescence is in the area of real estate where it is often used in conjunction with the appraisal of different types of real estate.It affects such property due to the presence of some negative strikes against the structure of the building or some other feature in the property. For instance, the number of rooms that are available in a home could be a source of functional obsolescence. Another issue that could be included in this type of defect is the style of the building itself as well as other issues like the floor plans. This consideration could affect the ability to obtain a mortgage from a lender since the presence of functional obsolescence in a property would detract from the value and most lenders would not consider the property to be a good investment.

A really good example of the term can be seen in the case of computer software. The constant innovations in this field and the frequency of introduction of new software programs often mean that the old programs would soon cease to perform in relation to the new realities regarding the increased expectations of the consumers. Functional obsolescence can be attributed to such a case.

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Discussion Comments


@Grivusangel -- Here's what's weird: pens and pencils are still widely used. People still have to "jot things down," and so those ancient tools are still with us, even though they have been updated.

I love using a computer for writing, since my handwriting is atrocious, but I still see a very real need to teach children to write in school -- and to write clearly. I do not see a time in the near future when people will only fill out forms online or on a computer. These forms may be scanned or otherwise transferred to a digital format, but someone will still need to be able to write to fill out forms.


I'd say typewriters are another great example of functional obsolescence. The need for printed material still exists, but there are much better ways to do it.

It's hard for me to believe I was using a typewriter just 25 years ago, and now I'm using a word processing program on a computer. Of course, when one can correct one's mistakes without the use of a type eraser, a correction ribbon or white out, life is much, much easier.

It doesn't eliminate errors, though. Just look at nearly any article online.

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