An over-improvement such as luxurious flooring in a modest home is an example of?

An over-improvement, like luxurious flooring in a modest home, exemplifies functional obsolescence because it reflects a mismatch between the home’s upgrades and the expectations of the local market. Functional obsolescence occurs when a property's features are not well-suited to the market's demand, leading to a decline in value. In this case, while the luxurious flooring may be of high quality, it does not align with the standard of the surrounding homes, which may lead to the property being less appealing to potential buyers or result in a lower valuation compared to similar homes without such extravagant features.

This concept underscores the importance of matching property improvements to the expectations and needs of buyers in that particular neighborhood or market segment. Improvements that exceed local standards can detract from the overall appeal and resale value of a property, as potential buyers may not see value in the extra expenditure when compared to more modestly finished homes.