Functional obsolescence in real estate occurs due to which of the following?

Functional obsolescence in real estate refers to a decline in property value due to outdated features or problems that make a property less desirable or less functional compared to newer alternatives. These can include issues like poor layout, lack of modern amenities, or design flaws that do not meet current market expectations.

Choosing "a loss of value due to functional problems" as the reason for functional obsolescence highlights the direct link between the property's characteristics and its market value. For instance, a home with a layout that is inefficient or lacks necessary updates, such as not having adequate bathroom facilities for the number of residents, loses appeal and thus value in the market due to those specific functional shortcomings.

The other options provided do not relate to functional obsolescence. For instance, an increase in market demand or new construction that enhances neighborhood appeal can actually improve property values rather than diminish them. Environmental improvements nearby, while they can have a positive effect on property values, do not directly relate to the internal functional issues of a property. Therefore, the correct choice accurately captures the essence of functional obsolescence in real estate.