The influence of external factors on property value

There are so many ways to increase property value, but at the same time there are certain things outside a homeowner’s control that will plain and simply be a negative for value.

What is external obsolescence and why does it matter for property value? External obsolescence is a factor that reduces the value of an improvement because of something external to the property itself. It’s not about whether the house is outdated or not, but rather something outside of the home that is causing a lower value. It’s usually something that cannot be cured.

View of freeway: photo by Sacramento Appraisal Blog

Five Examples of External Obsolescence

  1. Busy Road:  This is a very common example of external obsolescence because we can see it in virtually every community to some extent. Homes on busy corners, on main streets or near freeways suffer from extra noise and traffic, both of which are not friendly to higher values.
  2. Commercial buildings:  Residential and commercial uses tend to not mix well in suburban areas. It’s usually a negative factor when houses are located next to restaurants, retail, gas stations, etc…
  3. Construction of a landfill next to a neighborhood: This can impact the entire neighborhood (not just one house) due to the smell or even the noise of large garbage trucks moving in and out.
  4. Apartments: Being located next to an apartment building is almost always less desirable for buyers. Or construction of low-income apartments can be a touchy subject for a higher-income neighborhood, and something that can impact property value too.
  5. High-Voltage Towers: A view of nearby power towers usually results in a hit to property value. Check out some pictures in a previous post, “High voltage towers and property value.”

I shot this 30-second clip about two years ago on an appraisal inspection. Do you hear any external obsolescence? Watch here or below.

External obsolescence reminds us when we buy a home, we buy the neighborhood too. Owning property is not just about what is inside a set of parcel lines because so many factors outside of a property can impact value (and quality of life).

Questions: Can you think of any other examples of external obsolescence? How has external obsolescence impacted your real estate decisions? What other factors outside of property can influence value? I’d love to hear from you in the comments below.

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Comments

  1. says

    Would having crazy neighbors be considered external obsolescence? Or neighbors that never mow their lawn?

    I’ve seen high voltage towers drop a property value by $75,000 before.

    • says

      That made me laugh, Brad. Well played. Neighbors can either make or break a neighborhood. That’s so true.

      I know you’re being funny, but for any onlookers dealing with crazy neighbors, it wouldn’t be considered external obsolescence because external obsolescence deals with something that cannot be cured or easily cured like the location of a busy street, view of a highway, proximity to high-voltage tower or some other adverse factor. Having terrible neighbors can make life difficult, but thankfully that’s something that can be cured by a move on their part, code enforcement bringing down the hammer, law enforcement, a change of behavior or some other factor. It’s the same with incessant barking. While it’s annoying, it can often still be cured.

      $75K is huge. What was it about these towers that caused such a huge hit? It’s one thing when towers are off in the far distance, but when they are up close, they can really cramp the feel of a house or mess with the “million dollar view”.

  2. Fady I says

    Would having a small graveyard or memorial between your house and one of your other neighbors be considered an external influence? It’s inactive (WW2 memorial) but still there, what do you think?

    • says

      Hi Fady. Thank you for reaching out. The graveyard is a potential external influence because it could make an impact on the value. Of course it might not impact value at all, but it’s at least a question we need to ask. Personally I would have no issue with such a location, but my personal feelings may or may not represent the market. I wish I had a definitive answer for you, but your local market will determine if there is any impact to value or not.

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