Recently, a student told me she had a question about external obsolescence on the Florida real estate sales associate exam. The question asked her to identify an example of external obsolescence.
External obsolescence is loss of value due to something that happens off the property or external to the property. For example, if a power plant is built across the street from your home, this is external to your property, but it will probably decrease the value of your home. This is external obsolescence. Construction noise and dust caused by the new school being built around the corner is external obsolescence. If the city decides the new jail should be near your house, that would be external obsolescence.
Don’t confuse something that is external to your property with something that is external to your house. For example, if a sinkhole develops in your backyard, this is NOT external obsolescence. External obsolescence has to be external to your property. The sinkhole in the backyard is external to your house, but it is still part of your property. Peeling paint on the outside of the house is not external obsolescence. The sinkhole or the peeling paint are both examples of physical deterioration. On the street, we call that wear and tear.
Remember, external obsolescence is something that is off the property or external to the property. Don’t confuse external to the building with external to the property.
Please note that neither I, nor anyone in the Climer family, have any affiliation with Climer School of Real Estate. My father, Ron Climer, sold Climer School of Real Estate in 2014. You can find me at Demetree School of Real Estate.