Physical Obsolescence

[RNMOVR]

Does anybody use the term physical obsolescence. I use it to describe obsolete style, design, construction type or anything except functional/external obsolescence. Such as, characteristics that don't affect function, but are cosmetically obsolete (i.e. building materials, popcorn ceilings, dated fixtures, shag carpet etc.). I had an underwriter call me out on it and I'm looking for a formal definition. I did a web search and did not find anything on it. Did I just make this term up? Any feedback would be greatly appreciated.

 

[Mr Rex]

Does anybody use the term physical obsolescence. I use it to describe obsolete style, design, construction type or anything except functional/external obsolescence. Such as, characteristics that don't affect function, but are cosmetically obsolete (i.e. building materials, popcorn ceilings, dated fixtures, shag carpet etc.). I had an underwriter call me out on it and I'm looking for a formal definition. I did a web search and did not find anything on it. Did I just make this term up? Any feedback would be greatly appreciated.

All these items are functional obsolescence. Physical obsolescence means its worn out.

 

[hastalavista]

Does anybody use the term physical obsolescence. I use it to describe obsolete style, design, construction type or anything except functional/external obsolescence. Such as, characteristics that don't affect function, but are cosmetically obsolete (i.e. building materials, popcorn ceilings, dated fixtures, shag carpet etc.). I had an underwriter call me out on it and I'm looking for a formal definition. I did a web search and did not find anything on it. Did I just make this term up? Any feedback would be greatly appreciated.

I don't think I've ever heard of "physical obsolescence"? I've heard of physical deterioration which causes depreciation.
Obsolete style, design, or construction type sounds more like a functional obsolescence to me.
Here's the definition of obsolescence from from the The Dictionary of Real Estate Appraisal(4th ed.):

obsolescence
One cause of depreciation; an impairment of desirability and usefulness caused by new inventions, changes in design, improved processes for production, or external factors that make a property less desirable and valuable for a continued use; may be either functional or external. See also curable functional obsolescence; depreciation; external obsolescence; incurable functional obsolescence.

Note that obsolescence causes depreciation. An obsolete design may be physically fine (brand new, no age wear and tear) and yet still create obsolescence.

On the other hand, physical deterioration is caused when an item begins to wear out.
Here's depreciation:

depreciation
1. In appraising, a loss in property value from any cause; the difference between the cost of an improvement on the effective date of the appraisal and the market value of the improvement on the same date.
2. In accounting, an allowance made against the loss in value of an asset for a defined purpose and computed using a specified method.

And here's physical deterioration:

physical deterioration
An element of depreciation; loss in value caused by wear, tear, age and use. See also curable physical deterioration; incurable physical deterioration; long-lived item; short-lived item.

I'll admit that I fall into the habit of using the term physical depreciation for the correct term of physical deterioration.

Here's a piece of advice for every appraiser. Purchase the current edition of The Dictionary of Real Estate Appraisal published by the Appraisal Institute. It even comes with a handy-dandy CD that you have on your computer for quick look-ups (as I did).

Good luck!

 

[RNMOVR]

nope

All these items are functional obsolescence. Physical obsolescence means its worn out.

What if these items are in good repair and are simply dated? They function fine, but are simply not the current trend. Functional obsolescence deals with just that, function not form or style. Thanks for trying..

 

[hastalavista]

What if these items are in good repair and are simply dated? They function fine, but are simply not the current trend. Functional obsolescence deals with just that, function not form or style. Thanks for trying..

(my bold)

I think Rex not only tried but succeeded. :new_smile-l:

 

[Mr Rex]

"Dated or outdated" = Functional obsolescence even if still functioning. See The Appraisal of Real Estate 13th edition page 403 or M&S Depreciation section.

 

[RNMOVR]

awite

"Note that obsolescence causes depreciation. An obsolete design may be physically fine (brand new, no age wear and tear) and yet still create obsolescence.

But would it fall under functional since it does not affect funtion? The definition above is spot on, but it does not refer to it as functional obscolescence.

 

[hastalavista]

But would it fall under functional since it does not affect funtion? The definition above is spot on, but it does not refer to it as functional obscolescence.

Functionality can equate to acceptance in the market. Something can be brand new and yet not valued in the market at its replacement cost. Does such an item "function"? In terms of if can one live in it or use it, maybe. But in terms of market acceptance, it does not. That's functional obsolescence which creates depreciation.

 

[Paul Isolda]

But it does effect function, TO THE TYPICAL BUYER. It's not acceptable to the typical buyer and is functionally obsolete. Function is what is expected by the typical buyer whether it be # of bedrooms, baths, design, style, materials, etc.

 

[Metamorphic]

Just call it "Hideous and *SO* yesterday!"