Functional Obsolescence – what is it?

Google defines functional obsolescence as something that pertains to the property itself or within the boundaries of the property. We typically divide obsolescence into two different categories one being a deficiency (defective item) and the other being a superadequacy (too good of an item).

A couple of months ago I found myself explaining this term over and over again. Clients of mine had a wonderful vintage home under contract. It was right out of a 50’s Southern Living Magazine. In fact, the woman who staged the home for sale found a photograph of a similar kitchen in a home magazine from that era. The kitchen had metal cabinets, laminate counter tops with metal trim edging, one bathroom was all in pink with pink wall tile, a pink bathtub, a pink wall sink and a pink toilet. The second bathroom was similar but it was lime green. This home was in excellent condition. The counter tops looked brand new. None of the tiles were cracked. There were not any rub marks showing excessive use on any fixture in this home. This was a well cared for home and Mr & Mrs Buyer were excited to have the opportunity to own it.

So why did the term functional obsolescence come up? The appraiser used this term in his report. His opinion was that the home had two issues. One was that it was horribly out of date and needed a thorough remodeling. He obviously had no appreciation for a vintage home. This home also boasted three bathrooms, each in a bedroom. This home was actually ahead of it’s time in design as each bedroom was ensuite. The appraiser ruled that since the home had no guest bath, making a guest have to walk through a bedroom to get to a bathroom, that the house had functional obsolescence. The appraiser placed a very low and very unrealistic value on this home because he perceived it to be functionally obsolete.

I argued with the lender that functional obsolescence is in the eye of the beholder. The appraiser had no appreciation for the qualities this home offered where as Mr & Mrs Buyer felt right at home with this decor. Having three ensuite bedrooms worked perfectly for their extended family and really, how often do we have guests to our home? Once every couple of weeks? Why are we more concerned with how a guest will get to a bathroom than we are with the home owners day to day living? Thankfully the lender overturned the appraisal and Mr & Mrs Buyer soon closed on their new home. After two months they are still moving in. I can’t wait to see their finishing touches!

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