In real estate, what concept refers to reduced property value resulting from external factors?

The concept that refers to the reduction in property value due to external factors is known as external obsolescence. This occurs when changes outside of the property itself adversely affect its value. For example, factors such as increased traffic in the area, the opening of undesirable businesses nearby, or environmental issues can diminish the desirability of a location, leading to a decrease in property value.

External obsolescence is particularly significant because, unlike other forms of obsolescence which may be tied to the property itself, this form is tied to external influences that homeowners or investors may have little control over. Understanding this concept is crucial for real estate professionals as it affects property assessments, investment decisions, and market analysis. Recognizing external obsolescence helps realtors advise clients accurately on property values and potential investment risks.