Obsolescent Flaws That Cause Properties to Lose Value

The three types of obsolescent flaws that cause properties to lose value are:

1. Functional obsolescence: Functional obsolescence occurs when a property loses value due to its architectural design, building style, size, outdated amenities, local economic conditions, and changing technology. Look for properties with design features that would be relatively easy to upgrade or replace. For example, some buildings have facades that include outdated awning-type overhangs that can be removed to give the building a more modern appearance.

2. Economic obsolescence: Economic obsolescence occurs when a property loses value because of external factors, such as local traffic pattern changes or the construction of public nuisance-type properties and utilities, such as county jails and sewer treatment plants, on adjoining property. Seek out vacant, but structurally sound, properties that adjoin less desirable nuisance-type properties, for example, a vacant warehouse located next to a sewage treatment plant, which could be used by a manufacturer to store nonhaz-ardous materials.

3. Physical obsolescence: Physical obsolescence occurs when a property loses value due to gross mismanagement and physical neglect, resulting in deferred maintenance that is usually too costly to repair. Search for properties with only minor structural problems that can be corrected at a cost that is below the property's replacement cost. In other words, do not buy a real estate option on a property that is deemed to be physically obsolescent if it can be rebuilt from scratch for less than it would cost to repair.

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