What is Economic Obsolescence in Real Estate?

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What Is Economic Obsolescence In Real Estate?

What Is Economic Obsolescence In Real Estate?

What is economic obsolescence in real estate? In short, it is the loss of value of a property that is not caused by any fault of the property itself.

It can be due to external factors like a neighborhood experiencing a rise in crime, or due to economic factors such as problems in the job market.

No matter the cause, this type of depreciation can be very costly for property owners.

If you think your property may be suffering from economic obsolescence, it is essential to have it appraised by a professional. They will be able to give you an accurate estimate of the current value of your property, as well as how much it has depreciated.

From there, you can decide if it is worth making any changes or improvements to try and increase the value of your property.

If your planning on taking your real estate state exam, this is a concept you must study for.

What Causes Economic Obsolescence In Real Estate?

There are many external factors that can contribute to this type of depreciation. One of the most common is a change in the surrounding neighborhood. If a formerly safe and quiet neighborhood starts to experience an uptick in crime, this will likely cause property values to decrease.

This is because potential buyers will be less likely to want to live in an area that they perceive to be dangerous.

Another common cause of economic obsolescence is a change in the job market. If there are layoffs in the area or a decrease in the number of available jobs, this can lead to a reduction in property values.

This is because people will be less likely to be able to afford a home if they are not confident in their job security. There are many other potential causes of economic obsolescence, but these are two of the most common.

If you are concerned that your property may be at risk for this type of depreciation, it is important to stay up to date on what is happening in the surrounding area and the overall economy.

This way, you can be proactive about making changes to protect your investment.

Examples Of Economic Obsolescence

Economic obsolescence can have a major impact on property values. Here are a few examples of how this type of depreciation can occur:

  • A neighborhood experiences an increase in crime rates
  • The local job market suffers from layoffs or a decrease in available positions
  • The surrounding area experiences a decline in population
  • There is a new development built nearby that causes increased traffic or noise
  • The property is located in an area that is prone to natural disasters

Each of these examples can lead to a decrease in the value of a property.

When it comes to taking your real estate exam, you need to be familiar with all the different types of obsolescence that can affect a property's value.

Make sure you study economic obsolescence so that you are prepared for any questions that may come up on the exam.

If you want to see some examples of questions that will be on the actual real estate exam, check out our free real estate practice exam. We have been named as the best real estate exam practice for 7 years in a row!

If you need to get your required educational hours done, check out our partners for online real estate education that can be done at your own pace from home or where ever you have internet access.

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