Thursday, January 14, 2010

External obsolescence - whats that?

The Dictionary of Real Estate Appraisal defines external obsolescence as: "An element of accrued depreciation; a defect, usually incurable, caused by negative influences outside a site."

External obsolescence causes a loss in value to your property caused by forces that you can not control like the current condition of the world economy. That's what it means when its says "usually incurable", you cant fix it and just have to live with it.

The type of external I will deal with in this blog is "Locational Obsolescence" in other words a bad location. This is another thing you can't fix, if you buy a bad location, you are stuck with a bad location.

Why do people buy a piece of real estate with a bad location? It beats me, as it appears there is some fool to buy every bad location out there.

It might be that they think they got a deal on the property. In this blog I will show that you never really get a deal on a bad location. You might think its a deal when you are buying, but wait till you try and sell.

And it just might be that the buyer does not think the location is bad. The location does not seem to bother them. Believe me it will bother prospective buyers when you want to sell.

When a property has a bad location an appraiser says that the property "Suffers" from external obsolescence. This can be from a location backing to railroad tracks, located on an arterial street, the proximity to commercial or industrial property, low flying aircraft, smells, odor's, crime, ..etc..

In the real estate boom years buyers were purchasing every piece of property offered for sale. That is not the case now, the MLS is loaded with listings for sale. No one is going to buy your bad location when they can get a better one for similar money.

As a real estate appraiser in the Chicago area I run across properties suffering from external all the time. In this blog I will point out different bad locations, for you to keep in mind when you are considering a residential real estate purchase.

My advice is "Just say No to a bad location.

1 comment:

  1. What is your opinion of how excessive on-street and multiple car parking on two adjacent houses may cause external obsolescence?