External Obsolescence refers to what type of loss in value?

External obsolescence is specifically associated with a reduction in property value that is attributable to external factors outside the property itself. This type of depreciation is typically the result of economic conditions, changes in zoning laws, or neighborhood decline, rather than issues with the property’s physical features or its inherent attributes. For instance, if a new freeway is built nearby, it might increase noise and traffic, which can negatively impact property values despite the property itself being well-maintained and desirable.

This contrasts with other types of obsolescence. Economic conditions influencing external obsolescence may include fluctuating market demand, rising crime rates in the area, or changes that alter the desirability of the location, which may not reflect the actual condition or attributes of the property. Internal factors, such as the condition of the property or its design, don’t fall under external obsolescence; they are instead categorized under physical or functional obsolescence.