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economic obsolescence

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economic obsolescence

A factor that reduces the value of an improvement because of something external to the property itself. A well-built and well-maintained house may suffer economic obsolescence because it is located on one acre of land in the middle of a fast-food area on a major suburban road. The improvement—the house—no longer has any value at all. In this example, though, that hardly matters because the land is worth vastly more than the original homeowners ever dreamed.



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In a transitional economy such as Ukraine, economic obsolescence presents both the most significant valuation challenge and accounts for the most significant variation in asset valuation through time.
Economic obsolescence is a form of depreciation, or loss in value, caused by unfavorable external conditions.
For example, the effect of economic obsolescence is discussed as the "option value of discarding the (old) asset" (p.
 
 
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