Estimating External Obsolescence

by Philip G. Spool, ASA
 
My previous two articles were about estimating physical depreciation and functional obsolescence. In my article on functional obsolescence, I indicated that it is very complicated to understand and to estimate. I also discussed calculating functional obsolescence in the cost and sales comparison approaches. This article discusses estimating external obsolescence, which is the least applied of the three depreciations/obsolescences.

The real estate appraisal books have very little discussion of external obsolescence. Just like my article on functional obsolescence, I read and re-read many appraisal books regarding external obsolescence and how it is determined. Not much is written on it and I can understand why. It is used very little and is good in theory but difficult to apply in the real world. Much of it is based on judgment, which is why it is easy to criticize someone else’s report. I imagine this article will be the same, in that I can explain what it is theoretically but find that real world examples are easy to state but difficult to support.