What is external obsolescence in real estate?

External obsolescence in real estate refers to a loss in value that occurs because of factors that are outside the physical property itself, impacting its desirability and market value. This could include various external influences such as changes in the neighborhood, declining economic conditions, zoning changes, or proximity to undesirable developments like landfills or industrial sites.

This type of obsolescence is considered externally driven rather than being a result of the condition of the property itself or its immediate environment. For instance, if a school closes nearby or if a new highway introduces heavy traffic near a residential area, the desirability and therefore the value of the properties in that vicinity may decrease. The correct answer captures this essence by highlighting that it is the external factors, not the inherent qualities of the property, that lead to a decrease in value. Such understanding is crucial for real estate professionals in assessing property value accurately and advising clients effectively.