Functional obsolescence in Massachusetts Real Estate can be defined as several different things, but it most often pertains to a property that does not comply with recognized utility. In other words, some features are not practical or desirable. The property’s obsolete design significantly reduces its market appeal.
There are numerous examples of functional obsolescence, but one that hit close to home was a property I sold several years ago with more than a few flaws. This particular property was extensive—4000 plus square feet.
The home, however did not have a formal dining or living room. Many of the newer homes today are built without one of these formal spaces, but rarely are both missing. Strike #1
Furthermore, this house featured an enormous two-story great room that took up much of the home. The result was that all the bedrooms were tiny for a home of this caliber. Strike #2
In what I would consider one of the strangest design flaws, the laundry room was in one of the kid’s bedrooms! Can you imagine waking up little Johny to do another load of laundry? Hearing that tumbling noise and the buzzer going off would get old quickly 🙂 Strike #3.
Lastly, the home and lot design were such that the front door was 15 feet off the ground level. To enter the house, you had to go through a basement door or climb a large flight of stairs. Never mind that you had to look at an ugly deck and stairs in front of your home. Strike #4.
What Does Functionally Obsolete Mean in Massachusetts Real Estate?
Functional Obsolescence Can Severely Impact Home Values
It is rare to see a home with this degree of functional obsolescence. You would probably not be surprised to hear that this home was foreclosed.
I ended up selling the home for the bank that foreclosed on the builder. Ironically, he had asked me to list the property before it was even built, and I turned him down. I pleaded with this man not to construct the home, telling him he would lose his shirt. He would not listen.
To give you an idea of just how much the functional obsolescence affected this property, a typical home with the size and amenities of this property would be valued at around $800,000 in the town in which it was located.
It ended up selling for $530,000!! I would call that severe obsolescence.
Another type of obsolescence could be more stylish, such as a Tudor built in a neighborhood with all contemporaries or colonials. In this situation, a home could stick out like a sore thumb.
Lastly, economic obsolescence is when a value drops because of external factors surrounding the property. An example could be when a residential zoning district blends into a commercial or business zone. A home next to a gas station, jail, or other business establishment would be considered dysfunctional.
When selling a home, it is crucial to factor in any factors the market doesn’t like due to being obsolete.
Examples of Obsolete Functionality
Some other examples of functional obsolescence in homes include:
- All bedrooms are on the 2nd floor, and the only bath is on the 1st floor.
- Walking through one bedroom to get to another.
- Walking through a dining room or living room to get to a bedroom.
- Walking through a formal space to enter the garage.
- There is no entrance to the basement from the interior of a home.
Sometimes, as a Realtor, explaining these things to a seller can be difficult. People can incorrectly assume you don’t like their home because you are pointing out the flaws.
Understanding the Impact of Functional Obsolescence on Property Value in Massachusetts
Functional obsolescence in real estate affects a property’s desirability and value. Massachusetts properties that show signs of functional obsolescence, whether due to obsolete design features or external factors beyond the owner’s control, often see a reduction in their appraisal values.
This depreciation is particularly significant when the obsolescence is deemed incurable. Sometimes, the cost is prohibitively high or even impossible.
Investors and homeowners must carefully consider the long-term implications of functional obsolescence on property valuation. This is especially true in a fluctuating real estate market where market tastes and standards change quickly.
Your renovation efforts should align with current market demands, so keeping up-to-date with the local market is crucial. Sound guidance can mitigate some of the negative impacts of functional obsolescence. It’s also critical to thoroughly analyze renovation costs versus potential increases in property value to ensure a sound investment strategy.
Understanding how functional obsolescence affects appraisal values is crucial for real estate investors.
Strategies to Address Functional Obsolescence
Addressing functional obsolescence in Massachusetts requires a strategic approach, particularly when considering investment in real estate. Owners can make targeted renovations for properties suffering from curable obsolescence that align with current market demands. Doing so can enhance the property’s appeal and value. This might involve updating an impractical layout, adding additional bathrooms, or modernizing outdated features.
However, when dealing with incurable obsolescence, the strategy shifts towards understanding the market and potentially targeting a niche buyer demographic that may find value in the property’s unique aspects.
I recommend investors consider the broader real estate market trends. What is deemed obsolete today might return to favor, offering long-term investment opportunities.
A thorough cost-benefit analysis is essential to determine whether addressing functional obsolescence is financially viable and aligns with one’s investment strategy. An effective business method involves identifying properties with curable functional obsolescence for potential high returns.
External Factors Can Contribute to Functionality
Obsolescence in real estate isn’t always about the house. It can be location obsolescence as well. External factors, such as increased traffic or the construction of undesirable facilities nearby, can contribute to a property’s functional obsolescence.
Other Real Estate articles worth reading:
- Energy savings tips for the home: See tips on saving money on your property.
- Staging a Massachusetts home: Learn what it takes to prepare your home for the real estate market to sell for top dollar.
Conclusion
Understanding functional utility is crucial for buyers and sellers. Home sellers need to price their homes correctly based on any downsides, and buyers must recognize the drawbacks of an obsolete property and make their offers accordingly.
You are so right, Bill. We see this every so often….people who build a home with their own specific tastes and ideas in mind without considering resale. If you mess up the traffic flow, leave out essential rooms, or customize a home too much , it can be a difficult sale when you decide to market it.
Bonnie I have seen quite a few homes built where sellers have made poor decisions that do not fit with market trends but this was beyond foolish. Have one or two problems to overcome is one thing but not a number of them like this home.
Hi, Bill,
Another great article. I do agree with you. But there are some areas where the majority of the homes are older. Therefore, there is only one bathroom, downstairs, with all the bedrooms upstairs. And the obsolesences is really the few newer, more modern homes that have replaced these older ones.
With that being said, sometimes owners re-model these beautiful older homes, keeping all the charm while at the same time updating them.
I was a realtor in another life and I’m watching the seller across the street lower his price over and over because of one simple thing – the most atrocious architectural nightmare front window that completely ruins the look of the house. And I’m in a town with a chronic housing shortage, resulting in a chronic tight seller’s market. Sellers rarely, if ever, make concessions here.
When I saw the ‘for sale’ sign go up I immediately wondered how that window would fly with buyers. Looks like it isn’t.
Having said that, its been my experience that just about anything will sell for the right price.
It is funny Lisa because many sellers do not recognize functional obsolescence. You know immediately when you walk into a funky home that has something that is out of place. If you don’t account for it in the price it will usually languish on the market.
Great blog Bill. I think we as real estate professionals have all ran across that one property. The one where everything looks great. The home is in excellent condition. The homeowner is motivated and then. The master bath is the size of an outhouse or the 3000+ square foot home has only two bedrooms. But don’t throw out the baby with the bathwater.
Tomorrow my buyer client is closing on a home that has been on the market for almost 1 year. This home has no closets to speak of, only one true bedroom and is in the middle of no where. But my client immediately fell in love with the place. It fits his needs and then some. So if the home isn’t your typical three bedroom two bath, someone, somewhere is looking for it. The question is. How long will it sit on the market and how much will the seller have to sacrifice to sell it.
Allen it kind of reminds me of the famous quote there is an #$* for every seat:) While there is a house for everyone, when they go to sell they will find out again what the harsh realities of functional obsolescence means.
Great examples Bill, I wish we could see the front door that’s 15 feet above ground level! One example of functional obsolescence common in Albuquerque is the garage conversion that’s so popular in the northeast heights. In some neighborhoods the homes are so small and so popular that it’s actually OK to do this. Many of the homes in those areas have and over time it’s become an accepted thing. It does add value in spite of the FO created. However, in less desirable areas of town where it’s not standard practice it actually hurts a property’s value.
Wow, Bill that really is functional obsolence. I recently went into an older home (and a very large one) that one of my customers bought w/ some similar sorts of issues, but most of the issues were on the structure of the first floor (for example, the family room was 3 rooms away from the kitchen and has a wall where it shouldn’t be. There are several other things just all wrong where it makes you want to move the kitchen to the opposite side of the house. Also, the laundry machines were in the MBR closet…but, thankfully I suggested they move these downstairs and plumber was able to fix that easily.
But, to the broader point, sometimes I see customers doing things that please them without thinkng about resale value. I have a customer wo/ kids in a 3 bedroom place and they intend to take down a wall to create a large MBR, but then it’s only a 2 bedroom place so it limits who will buy later.
Absolutely right on target information. Should be required reading for builders, would-be builders or homeowners remodeling their property.
Debbie it was probably one of the strangest homes I had ever been in. It is one thing to have one element of functional obsolescence but when there are multiply issues it really blows you away.