What term describes the loss of property value due to negative external factors beyond the owner's control?

The term that describes the loss of property value due to negative external factors beyond the owner's control is known as external (economic) obsolescence. This concept encompasses loss in value caused by factors that exist outside the property itself, such as changes in the surrounding environment, economic downturns, or shifts in market demand that detrimentally influence property desirability and marketability.

External obsolescence is significant because it represents conditions that a property owner cannot change or remedy directly—such as the construction of a nearby factory or a decline in neighborhood quality. Understanding this concept is crucial for property valuation and management as it ultimately impacts investment decisions and real estate strategies.

In contrast, the other terms refer to different aspects of property value loss. Market depreciation typically addresses the overall decrease in market value due to supply and demand dynamics, while physical deterioration pertains to wear and tear or damage to the property itself. Functional obsolescence deals with inefficiencies or inadequacies in the property’s design or layout that impair its functionality or desirability. Each of these concepts is vital in real estate but distinct from the effects of external economic conditions captured by external obsolescence.