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The circumstance in which a good or service is no longer desired, especially when a new, better good or service becomes available. For example, relatively few people use VHS tapes because DVDs are both more convenient and are higher quality. VHS tapes, then, have undergone obsolescence. Some companies deliberately render their products obsolete because it makes customers more likely to come back and buy new products. See also: Planned obsolescence.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved


  1. the tendency for products to become outmoded and to reach the end of their effective PRODUCT LIFE CYCLE. Obsolescence may be due to changes in style, fashion, materials used and the functions performed. With rapidly advancing technology and more fickle public tastes, product life cycles are tending to shorten as new, more sophisticated products supersede established products. Firms may respond by frequently updating their existing products in order to lengthen their life cycle. Alternatively, firms may deliberately follow a strategy of ‘planned obsolescence’ by bringing out a continuous stream of new products both to establish COMPETITIVE ADVANTAGE over rival suppliers, and to increase their total sales by inducing customers to replace products more frequently.


  2. the reduction in the value of a FIXED ASSET because of a significant change in demand or technology which renders the asset out of date, or comparatively inefficient.

    Renting or LEASING plant, machinery and equipment avoids the risk of obsolescence, since at the end of the rental or lease period a firm may rent or lease a more modern fixed asset.

Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson


A loss in value of an improvement because something makes it undesirable or no longer useful,even though it might be structurally sound.

• Functional obsolescence occurs because of factors within a property, such as a poor floor plan or lack of modern amenities. A three-bedroom, one-bathroom house with a one-car garage would generally be considered as suffering from functional obsolescence.

• Economic obsolescence, also called environmental obsolescence and external obsolescence, occurs because of factors outside a property. Examples include construction of an airport near a residential area or a change in highway access leaving a retail area stranded.

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.
References in periodicals archive ?
Frequently, appraisers will study the situation and conclude that there is 10%, 15%, 20%, or even 25% of external obsolescence. While this percentage results in an amount that shows in the appraisal, the absolute amount is not given due consideration.
Most notably, curable physical deterioration and curable functional obsolescence should be deducted last.
What is now termed incurable physical deterioration is actually a combination of both incurable physical deterioration and incurable ordinary functional obsolescence. This combination is included in the term baseline depreciation.
Functional inutility that is not ordinary should next be deducted and explained as special incurable functional obsolescence. This is functional inutility not normally found in buildings of about the same age as the subject property.
A new category of accrued depreciation, overall obsolescence, is deducted next.
The final deduction before arriving at the property's market value if cured is external obsolescence. External obsolescence includes the physical, economic, social, and political factors that are outside the property and exert negative or positive influences on value.