What does external obsolescence signify in property valuation?

External obsolescence in property valuation reflects the depreciation that results from external factors affecting the property rather than problems inherent to the property itself. This can include elements such as changes in the surrounding neighborhood, shifts in the local economy, or environmental issues that negatively impact the desirability or functionality of the location.

For instance, if a property is situated near a newly established landfill or faces increased traffic due to a new major road, the value of that property may decrease because of these adverse external influences. This type of obsolescence is significant in property appraisal as it helps determine the fair market value by considering influences that are beyond the control of the property owner.

Other options mention internal factors or renovations that exceed property value, which are associated with different types of depreciation and do not align with the definition of external obsolescence. Additionally, neighborhood improvements leading to increased property value is the opposite of obsolescence, which focuses on depreciation rather than enhancement. Understanding these distinctions is crucial for a comprehensive grasp of property valuation principles.