Functional obsolescence in Real Estate can be defined as a few different things but more often than not it pertains to a property not complying with recognized utility. In other words there are features that are not practical or desirable.
There are numerous examples of functional obsolescence but one that hits close to home was a property I recently sold that had more than a few flaws. This particular property was very large in size – 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 a large portion of the home. The end result was all the bedrooms being very small for a home of this caliber. Strike #2
In what I would consider one of the strangest design flaws, the laundry room was located in one of the kids 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 quick:) Strike #3.
Lastly the home and lot design were such that the front door to the home was 15 feet off of the ground level. In order to enter the house you had to either go in through a basement door or climb a large flight of stairs. Never mind the fact you had to look at an ugly deck and set of stairs in the front of your home. Strike #4.
It is rare to ever see this degree of functional obsolescence in a home. You would probably not be surprised to hear that this home ended up in foreclosure.
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. In fact I pleaded with this man not to build the home. I told him he would lose his shirt and 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 which it was located.
It ended up selling for $530,000!! I would call that serious obsolescence.
Another type of obsolescence could be more stylish in nature such as a Tudor being built in a neighborhood that has all contemporaries or colonials. In this situation a home could be sticking out like a sore thumb.
Lastly, economic obsolescence is when there is a drop in value 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 located next to a gas station, jail, or other business establishment would be considered dysfunctional.
Some other examples of functional obsolescence in homes include:
- All bedrooms on the 2nd floor and the only bath located 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.
- No entrance to the basement from a homes interior.
Sometimes as a Realtor, explaining these things to a seller can be difficult. There are times where people can incorrectly assume you don’t like their home because you are pointing out the flaws.
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About the author: The above Real Estate information on Functional obsolescence in Real Estate was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at email@example.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.
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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.
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.