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 One was that it was horribly out of date and needed a thorough remodeling.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!


Context ( con·text )

According to the Merriam-Webster Dictionary:

Full Definition of context

  1. 1:  the parts of a discourse that surround a word or passage and can throw light on its meaning

  2. 2:  the interrelated conditions in which something exists or occurs :environment, setting<the historical context of the war>

Why am I writing about context? I’m writing because lately this is a word that many people forget and it can really ruin someones day. Here is an example……

Mr & Mrs Buyer are deep into purchasing a new property. Every condition has been met with the lender except the appraisal. There are two parts to this appraisal.  One part is the house and some land. The other part is a large barn that has been used as an event center. These are two properties being purchased under one contract.  Let’s say the contract is for $800,000.  The lender sends Mr & Mrs Buyer an email that says “the appraisal came in at $500,000.” Nothing else. No other pertinent information. It is lacking context.

Shame on that lender. Mr & Mrs Buyer immediately contact me because they are understandably upset. “What does this mean!”  Well, best case scenario is that this appraisal is for the event center which is commercial and not for the house and land which is considered residential. Worst case scenario is that the property as a whole did not appraise and with this big of a difference, your contract is most likely sunk. This is not good news to receive over your morning coffee, especially when Mr & Mrs Buyer are very heavily vested in this purchase. This news potentially turns their world upside down but without context from their lender, they have no way of knowing.  I encouraged them to call their lender nonstop until they received an answer.

The good news is that, as I suspected, the $500,000 was for part of the appraisal. Everything is still looking rosy for their loan. If the lender had included a little bit of context with their original email, it would have saved Mr & Mrs Buyer an unnecessarily gut wrenching morning. Purchasing real estate is stressful enough. My job as their agent and the job of anyone who is employed by the Buyer or Seller during a real estate transaction, is to make this process as smooth and stress free as we can for our clients. Making sure our communications contain proper context goes a long way to achieving this goal.

Your thoughts?