What is economic obsolescence?

Economic obsolescence refers to a reduction in property value that is attributable to external factors affecting the market or neighborhood, rather than to the property itself. This can include influences such as changes in zoning laws, significant shifts in the local economy, the construction of undesirable developments nearby, or a decline in the area's overall desirability. These outside forces can lead to a decrease in demand for the property, ultimately impacting its market value negatively.

The correct answer highlights that economic obsolescence is not derived from the physical condition of the property or due to any internal management issues but is strictly related to external factors. Understanding this concept is crucial for property management because it helps in assessing the overall value of a property within its larger economic environment and provides insights into potential investment risks.