What does economic obsolescence refer to in real estate?

Economic obsolescence is a term used in real estate to describe the loss of value of a property due to external factors that are beyond the control of the property owner. This can include things like changes in the economy, new developments in the area that negatively impact property values, or macroeconomic factors such as declining local employment opportunities or changes in zoning laws. Since these factors arise from the surrounding environment rather than the condition of the property itself, they can lead to a significant decline in value.

The option that correctly identifies economic obsolescence highlights the externality aspect, which means that property owners are often unable to remedy those issues through improvements or renovations. Understanding economic obsolescence is crucial for real estate professionals, as it can influence property valuations and investment decisions.