Common questions

What does economic obsolescence mean in real estate?

What does economic obsolescence mean in real estate?

Economic obsolescence (EO) is the loss of value resulting from external economic factors to an asset or group of assets. EO is often encountered in valuation work performed for financial reporting purposes, bankruptcy emergence and in other practice areas when dealing with companies in capital-intensive industries.

What is social obsolescence in real estate?

Economic obsolescence, sometimes known as social obsolescence, occurs when property values decrease because of external factors. Two identical buildings on identical pieces of land can have very different property values simply because of their location. …

How do you assess economic obsolescence?

Economic Obsolescence: A Definition

  1. Industry economics.
  2. Regulatory/legislative changes.
  3. Loss or scarcity of resources.
  4. Increased costs of production inputs, or inability to pass on increased costs.
  5. Reduced demand.
  6. Increased competition.
  7. Reduced earnings or profit margins.

What are the factors affecting functional obsolescence?

External Factors that Affect Functional Obsolescence

  • Busy roads. A property may be located close to a road that can become busy in the long term.
  • Construction of landfills.
  • Construction of low-income housing.

What are the types of obsolescence in real estate?

There are three types of obsolescence or flaws that cause properties to lose value:

  • Functional Obsolescence:
  • Economic Obsolescence:
  • Physical obsolescence:

What are the causes of obsolescence?

Five Causes of Obsolete Inventory

  • Inaccurate Forecasting. Bad forecasting of consumer demand means you risk will end up with excess stock.
  • Poor Product Quality or Design.
  • Inadequate Inventory Management System.
  • Long Lead Times.
  • No Management of Obsolete Inventory.

What are the three types of obsolescence?

Which of the following is a factor for obsolescence of the property?

The obsolescence may be due to the reason such as progress in arts, changes in fashion, changes in planning idea, new improvements, and changes in design techniques.

What are the 3 types of obsolescence?

What is an example of locational obsolescence?

Examples of Locational Obsolescence Building a property close to busy roads subjects the residents to traffic congestion, which may disrupt the travel schedules of most residents. Busy residents avoid such areas and this results in low demand for homes in specific locations.