Functional obsolescence is an adverse functional issue of a property according to current market housing trends and buyer needs, wants, or desires. It is the result of defects within a property. Whether a property has functional obsolescence or not is ultimately determined by the potential buyer of a property through their personal observations and how much they would be willing to pay for the property. Functional obsolescence may be caused by a deficiency or a super adequacy.
Superadequacy is typically associated with the features of a home that are above and beyond (over improvement) what is considered normal for the neighborhood and does not contribute to the overall value in an amount equal to their cost. An example of super adequacy would be a home that has a two-car detached garage, in addition to the home’s two-car attached garage. Although the additional two car detached garage may have value to some buyers (especially in the county where having a workshop is often beneficial), the cost to build the extra garage typically exceeds contributory value added to the home’s overall value. In most cases, however, the home with a two-car garage is all that is required or necessary for the majority of buyers and therefore the additional two-car garage represents diminishing returns.
A deficiency is basically the lack of something that other properties in the subject’s neighborhood have, such as a Cape Cod style home with three bedrooms, one on the first floor with one bathroom and two bedrooms on the second floor with no bathroom.
Some forms of functional obsolescence are curable while others are incurable. The key difference between whether it is curable or not is whether the cost to cure/correct results in an incremental increase in value. If it does it is considered curable. For example, adding a second-floor bathroom by bumping out a section of the roof line on the back of the home is a curable form of functional obsolescence. This addition would typically result in an increase in the overall value of the house greater than the cost to add the extra bathroom, assuming the bathroom can be accessed by both bedrooms without passing through one of them to access it. However, if the extra bathroom added is not appropriately functional, the cost to add the bathroom may exceed the incremental value gained by adding it.