Land Values and External Obsolescence

Summary

External obsolescence is perhaps one of the most challenging aspects of implementing the cost approach in appraisal. Loss due to external obsolescence is driven by factors outside the property, and it can be difficult to distinguish between external obsolescence of the improvements and a reduction in value of the land. In other words, external obsolescence is prone to double counting. The purpose of this article is to provide guidance as to when such value loss is attributable to the land and when it is attributable to the structure. The discussion demonstrates that external obsolescence can only arise when the existing structure is not the site’s highest and best use. As a result, external factors that affect the property’s value are attributable to the land if the current use is the property’s highest and best use and are attributable to external obsolescence of the building otherwise.