What is external obsolescence?

External obsolescence refers to a decrease in a property's value caused by factors outside of the property itself. These external factors can include changes in the surrounding area, such as a decline in neighborhood desirability, environmental issues, or economic downturns that affect the market as a whole. Essentially, it involves elements that impact the property negatively but are not related to its physical condition or intrinsic features.

For instance, if a once-thriving commercial area begins to see an increase in crime or the construction of a major highway diverts traffic away from a business, the value of properties in that vicinity may decline due to these external influences. This concept is important for appraisers as they must consider both internal and external factors when assessing property values.