Understanding Functional Obsolescence in Appraisals

By: McKissock

Excerpts: For appraisers, functional obsolescence can be a challenging concept because the elements that influence property values may not be obvious or immediately apparent. To help you better understand what it means and how to pinpoint it, we’re exploring some examples the different types of functional obsolescence, and how it can influence property values.

Functional obsolescence may or may not be caused by trends in buyer or market preferences, outdated design, or even advances in technology. Let’s look at a few examples:

  1. A home has three bedrooms, but to reach the third bedroom, you have to walk through the other secondary bedroom. Buyers are likely to see this as a flaw in the floor plan regardless of trends.
  2. A home has a separate formal living room, an enclosed kitchen, and a separate dining room. Today’s buyer prefers a more open, casual layout and may find the separate rooms a flaw in the floor plan, though this may change with market trends.
  3. A home with radiator heat and window unit air conditioning may be seen as functionally obsolete, and thus less valuable, as more modern homes have forced air furnaces and central air conditioning.

Measuring functional obsolescence and its effect on a property’s value can be challenging for even experienced appraisers. To ensure accurate reports, it’s essential you stay up to date and aware of market trends, and even code and building updates, as these changes over time do determine both curable and incurable obsolescence.

To read more, Click Here

My comments: All appraisers see functional obsolescence. Making adjustments can be tough. You need to know the market reaction.

For example, there are many Victorians in my market. They were built without closets and used armoires (free standing closets). It is not considered functional obsolescence as it retains a classic feature in many Victorian homes. I always wonder about what appraisers from tract home areas think about Victorians. I assume (hope) they ask local agents. When I started appraising them, that’s what I did.

I regularly tell local agents that “tandem” rooms don’t count as bedrooms. I’m trying not to think about how many listings have an incorrect number of bedrooms!

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NOTE: Please scroll down to read the other topics in this long blog post on Pool converted to man cave, saving noney, NJ appraiser censorship, bias, unusual homes, mortgage origination stats, etc.


Modern Masterpiece in Carmel, CA, for $9M

Excerpts: 2 bedroom, 2 bath, 1,992 sq.ft., 4,000 sq.ft. lot

Listed for $9 million, the two-bedroom, 1,992-square-foot home offers spectacular views of the Pacific Ocean in Carmel, CA.

The landmark, three-level residence was completed in 1999 by renowned architected John Thodos (1934-2009). He designed the home for himself, with the goal of creating a living space with 180-degree views of the Pacific Ocean. He took full advantage of the property’s prime location, which infuses every corner of the house with abundant natural light.

The design incorporates large windows, and Thodos’ aversion to “flat planes in design” led to the finished cubist design of the home, Canning explains. A vibrant, spiral staircase maximizes the space, while adding a visual element that echoes around the home.

To read more and see photos, Click Here

My comments: Carmel is very unique. Unwilling to see their village become “citified,” Carmel’s founding fathers rejected the practice house- to-house mail delivery in favor of a central post office. To this day, there are still no addresses, parking meters or street lights, and no sidewalks outside of Carmel’s downtown commercial area.

Clint Eastwood has long shown an interest in politics. He won election as the nonpartisan mayor of Carmel-by-the-Sea, California in April 1986. He now lives in nearby Carmel Valley, in Quail Meadows behind a gated community with significantly larger lots.

I have been there many times, but have never done an appraisal there. Never saw Clint. Darn!!


Corporate Home Ownership – Ryan Lundquist’s Polarizing Blog Post Goes Viral

On December 19 Ryan was featured on a Bay Area podcast, Unveiling the Corporate Landlords Behind Home Rentals in California on KQED’s December 19 Forum Podcast (55 minutes)

In his final podcast comments, Ryan said it was polarizing with many opinions. As of December 19, he had 42,000 views on his blog post.

Excerpts: Large corporations have quietly bought large collections of homes in California, mostly for use as rental properties, often hidden behind complex networks of shell companies. A Sacramento appraiser has begun to crack the code, revealing more than ten thousand properties in California owned by one company, Invitation Homes. He joins us, with other experts, to discuss the extent of corporate home ownership across the state and its impact on renters, homebuyers, and the real estate market.


Alex Lee, assemblymember, California State Assembly – he represents California’s 24th Assembly District which includes the Alameda County communities of Fremont, Newark, and Sunol, and the Santa Clara County communities of Milpitas and San Jose

Alana Semuels, economic correspondent, TIME magazine

To listen, click here

My comments: Every morning while exercising and when driving I listen to podcasts. KQED Forum is one of my favorites. I never expected Ryan to be on the show!


In the December 8 weekly email I wrote about Ryan Lundquist’s blog post on corporate home ownership:

This one company owns 9,000+ homes in California

To read the post, plus the 65+ appraiser comments, Click Here


Representative Smith and Senator Merkley Lead Bicameral Action to Ban Hedge Fund Ownership of Residential Housing

December 5, 2023

Excerpt: Representative Adam Smith (D-Wash.) and Senator Jeff Merkley (D-Ore.) teamed up to introduce the bicameral End Hedge Fund Control of American Homes Act of 2023. This legislation responds directly and forcefully to a persistent and growing problem — What Happens When Wall Street Buys Most of the Homes on Your Block

To read more, Click Here


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New in the January 1, 2024 issue of Appraisal Today

  • How to cut your business expenses

  • How to reduce your personal expenses

  • Retirement: To Stay, To Go, or Can’t Decide?

  • New Year’s Resolutions for Appraisers

If business is slow, every dollar counts! I included personal expenses this year. I have lots of ideas on ways to cut back.

If you have lots of work, cutting expenses means more money is available for savings/IRAs, updating hardware, fun, etc.

Retirement is a tough decision. I go over what is involved to help you decide.

New Year’s is a good time for 2024 planning. Both business and some personal choices are included.

Tax deduction for 2023 if purchased online before Midnight December 31!!

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New Jersey Draconian Penalties on Appraisers

By AppraisersBlogs.com

Excerpts: “Well, I guess no one will be doing appraisals in New Jersey… or maybe the standard fee is going to be $10,000?” said one appraiser.

The bill proposed by New Jersey Senate lawmakers to create steep penalties for real estate appraisers who undervalue homes because of the owner or buyer’s protected characteristics has been met with both praise and criticism. Supporters of the bill are lauding its potential to combat discrimination in housing transactions, while critics worry that it could lead to unintended consequences due to its disregard for appraisers’ motives.

Violators would pay $10,000 on a first offense, $25,000 on a second, and $50,000 on a third.

In its current form, this legislation seems destined for failure as well as financial hardship for those unfortunate enough to fall victim to its draconian penalties!

To read more, including 30+ appraiser comments, Click Here

My comments: I wrote about this in last week’s newsletter but did not have a lot of details then, plus there was no place to add your comments.



Error in Cost of renewing California appraiser licenses in last week’s newsletter!

California has a two year renewal costing $1,000 and a USPAP class, plus a second two year renewal requiring 56 hours of CE for $1,030 and total of $2,060 over 4 years or $515 per year.

How does this compare with your state renewal fees per year? I could not find a list of states with the fees online. Let me know if you have a link to one or information.



A firefighter spent $3,000 turning a broken swimming pool into a sunken man cave with a full-service bar in North Carolina

Excerpts: The 18-by-20-foot structure includes a working television, a refrigerator, and a full-service bar.

The entire project cost around $3,000 and took under two years to complete. Now, the man cave — along with the larger three-bedroom, two-bathroom house it serves as an escape from — is on the market for $340,000.

The home’s listing caught the attention of popular TikTok account Zillow Gone Wild, where a December 4 post racked up over 400,000 views and helped drum up interest in the property locally.

To read lots more and see aerial and inside photos, Click Here

My comment: Thanks to reader Joe Lynch for this great man cave plus the House Of Corrections error above. Great use for an empty pool! Expensive to fill in.


HOW TO USE THE NUMBERS BELOW. Appraisals are ordered after the loan application. These numbers tell you the future for the next few weeks. For more information on how they are compiled, Click Here.

Note: I publish a graph of this data every month in my paid monthly newsletter, Appraisal Today. For more information or get a FREE sample go to www.appraisaltoday.com/order Or call 510-865-8041, MTW, 7 AM to noon, Pacific time.

MBA Offices closed Monday, December 25, 2023 and will reopen on Tuesday, January 2, 2024.  Due to the holiday, the results for weeks ending December 22, 2023 and December 29, 2023 will both be released on January 3, 2024.


Ann O’Rourke, MAI, SRA, MBA

Appraiser and Publisher Appraisal Today

1826 Clement Ave. Suite 203 Alameda, CA 94501

Phone: 510-865-8041

Email:  ann@appraisaltoday.com

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