Locational Obsolescence

What is Locational Obsolescence?

Locational Obsolescence, or Economic Obsolescence, describes the loss in property value caused by factors external to the property itself, often related to its location. Unlike physical depreciation, which results from wear and tear, locational obsolescence originates from changes in the environment, market conditions, or regulatory landscape that affect the property’s desirability or utility.

Examples of Locational Obsolescence

Declining Neighborhoods: A high crime rate or deteriorating conditions in the surrounding area can reduce property desirability.
Industrial Development: New factories or plants may increase pollution levels, affecting residential property values nearby.
Infrastructure Changes: The introduction of a new highway or railway that creates noise and congestion directly near the property.
Zoning Changes: Local government adjustment of zoning laws making the current property use outdated or limiting future development opportunities.
Economic Downturns: Broader regional economic hardships causing overall property values in the area to decrease.

Frequently Asked Questions

Q1: How can property owners mitigate locational obsolescence? A1: Property owners can engage in community initiatives to improve local conditions, advocate for favorable zoning regulations, and stay informed about regional economic developments. Additionally, diversifying investments can mitigate risks related to locational obsolescence.

Q2: Can locational obsolescence be reversed? A2: Reversal is challenging and often depends on broader regional developments or government intervention. Neighborhood revitalization projects or significant infrastructural improvements can sometimes enhance the location’s attractiveness.

Q3: Is locational obsolescence considered when appraising property value? A3: Yes, appraisers take locational factors into account, especially those that directly influence the desirability and utility of a property.

Physical Obsolescence: Depreciation due to physical wear and tear of the property.
Functional Obsolescence: Depreciation from outdated design or features relative to current market demands.
Market Value: The estimated amount for which a property should exchange on the date of valuation.
Zoning Laws: Regulations governing how property in certain areas can be used.
Community Development: Initiatives aimed at improving local conditions and infrastructure.

Online Resources

References

“Dictionary of Real Estate Terms” by Damien Abbott
“Real Estate Principles” by Charles F. Floyd and Marcus T. Allen
“Real Estate Market Analysis” by Adrienne Schmitz

Suggested Books for Further Studies

“Appraising Residential Properties” by Appraisal Institute
“Community Real Estate Development” by Stephen B. Buckman
“The Language of Real Estate” by John W. Reilly

Real Estate Basics: Locational Obsolescence Fundamentals Quiz

### What is another term for Locational Obsolescence? - [x] Economic Obsolescence - [ ] Physical Obsolescence - [ ] Functional Obsolescence - [ ] Depreciation Outlay > **Explanation:** Locational Obsolescence is also commonly referred to as Economic Obsolescence. ### What primarily causes locational obsolescence? - [ ] Minor physical repairs needed on the property - [ ] Design aspects of the property - [x] Factors external to the property, such as neighborhood decline - [ ] Owner's financial situation > **Explanation:** Locational obsolescence is primarily caused by factors external to the property, which can include neighborhood deterioration or changes such as increased crime rates, pollution, etc. ### Can local zoning changes lead to locational obsolescence? - [x] Yes - [ ] No - [ ] Only if the property itself is rezoned - [ ] It depends on the market conditions > **Explanation:** Changes in zoning laws can greatly impact the utility and desirability of properties in specific areas, thereby contributing to locational obsolescence. ### Which initiative could potentially improve the conditions leading to locational obsolescence? - [ ] Ignoring external conditions - [x] Community development projects - [ ] Increasing property prices artificially - [ ] Expanding only the physical attributes of the property > **Explanation:** Community development projects can potentially improve local conditions, infrastructure, and thereby mitigate the effects of locational obsolescence. ### How does economic downturn affect locational obsolescence? - [x] Causes properties to lose value - [ ] Has no impact - [ ] Guarantees an increase in property value - [ ] Stabilizes the property market > **Explanation:** Economic downturns can lead to wider regional economic hardships, causing properties in the area to decrease in value, thus contributing to locational obsolescence. ### Are individual property improvements effective in combating locational obsolescence? - [ ] Yes, they can fully reverse it. - [x] No, because obsolescence stems from external factors. - [ ] It depends on the property's appraised value. - [ ] Only for short-term periods. > **Explanation:** Individual property improvements are generally ineffective in combating locational obsolescence, as the factors influencing this type of obsolescence are external to the property. ### Is locational obsolescence considered during property appraisals? - [x] Yes - [ ] No - [ ] Only in specific circumstances - [ ] Rarely, depending on appraisers' discretion > **Explanation:** Appraisers do take into account locational factors that can influence the desirability and utility of a property during appraisals. ### What can property owners participate in to curb locational obsolescence? - [ ] Real estate trading - [ ] Personal lifestyle changes - [x] Local community initiatives - [ ] Private investment banking > **Explanation:** Property owners can help curb locational obsolescence by participating in local community initiatives geared towards improving neighborhood conditions. ### Can increased pollution from nearby industrial development cause locational obsolescence? - [x] Yes - [ ] No - [ ] Only if it directly affects property boundaries - [ ] Only if the property is industrial > **Explanation:** Increased pollution from nearby industrial development can significantly affect the desirability and utility of residential properties, thus causing locational obsolescence. ### Which of these is NOT an example of locational obsolescence? - [ ] New disruptive factory nearby - [ ] Neighborhood with increasing crime rate - [ ] Rezony exclusionary laws - [x] Peeling paint on property exterior > **Explanation:** Peeling paint is a physical condition of the property and is not an external, locational factor causing obsolescence.