What is economic obsolescence in real estate?

Economic obsolescence refers to the loss of property value that occurs due to external factors that negatively affect the desirability of the property, not due to any physical characteristics or issues with the property itself. This can include influences such as changes in the economy, shifts in the neighborhood demographics, or the construction of undesirable developments nearby, such as factories or waste facilities.

The correct answer highlights that this type of obsolescence arises from factors outside the property’s control, rather than from age or physical wear. While some real estate depreciation can be attributed to age or physical deterioration—concepts captured in other answer choices—economic obsolescence is specifically about how broader economic conditions can impact property values. This makes it distinct from other forms of depreciation, such as physical or functional obsolescence, which focus more on the property itself rather than external conditions.