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 It’s not about whether the house is outdated or not, but rather something outside of the home that is causing a lower value.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.
Five Examples of External Obsolescence
- 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.
- 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…
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.- 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.
- 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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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.
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”.
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?
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.
Does the effect of a hurricane destroying the improvements on the land the only consideration the tax appraisers office should consider when lowering the property value. I think when establishing fair market value for the land only, that had improvements destroyed , should have some type of effect on the value on the land only value for the time the land was unusable, loss of use, expenses incurred for clean up, loss of income, etc. If the storm came in Oct 1st 2018 then I would think the land value would be decreased also due to lack of use for 3 months or 25% of the year. If the land values have stayed the same for 2016, 2017, 2018 and 2019 but the land was not the same for 3 months in 2018 it should be lowered due to this, external obsolescence??
Hi Hill. It’s hard to speak into this too much since I don’t know your market, but in my experience an Assessor’s office is likely to focus on the total value of the property rather than just one portion such as land. Granted, they do tend to assign a value to both land and improvements obviously, but often it’s an algorithm that is making the numbers work the way they do, and their big interest is on the total number rather than just one part of it. For instance, in my market residents are not allowed to appeal just the land value. You can only appeal the total assessed value of the property (structure and land). I would guess it’s like this in many places across the country. So my advice would be to probably focus on the bigger issue which is the total assessed value (unless it works differently in your market).
Of course a pattern of disasters could certainly affect the market, but we still have to look to the market for the answers. What are people paying for homes? Is there any effect in home prices from the disaster or series of disasters? Sometimes there could be and maybe other times not. My sense is in many cases after a disaster there could be a lull or almost a time-out in the market. But over time the market can tend to resume to where it otherwise would have been. But there really isn’t a one-size-fits-all answer either. I imagine some markets simply get destroyed and won’t come back. It’s different everywhere.