Real Estate Appraisal Practice Exam 2025 – Complete Prep Resource

Functional obsolescence refers to a decrease in property value due to changes in market preferences or differences between a property's features and what is currently desirable or useful in the marketplace. This can occur when a property has characteristics that are no longer appealing to buyers, such as outdated layouts, insufficient technology, or lack of modern amenities. As market tastes evolve, a property that once met the needs of its users may become less functional, leading to a reduction in its overall value.

In this context, the notion of market preference is essential as it directly impacts desirability. For example, an older home with a layout that does not cater to modern living trends may find fewer buyers, thereby diminishing its market value. The other options presented describe different aspects of property valuation. Changes in location typically relate to external influences, renovations generally lead to increased value, and an outdated design is a characteristic of functional obsolescence, but does not directly describe the value reduction aspect as effectively as the correct choice. Thus, option B accurately encapsulates the essence of functional obsolescence within the realm of real estate appraisal.