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Monday, August 11, 2014

Functional Obsolescence, what is that?




If you hang around Realtors for very long you may hear them referring to a house with the terms functional obsolescence or housing obsolescence; but, what does that mean? A house doesn’t really become obsolete in the sense that we might use that terms for other objects, like buggy whips or maybe even hard-wired phones these days. You can still live in it, even if it has become functional obsolete.

 

From the web site Investopedia.com comes this definition of Functional Obsolescence –

 

A reduction in the usefulness or desirability of an object because of an outdated design feature, usually one that cannot be easily changed. The term is commonly used in real estate, but has a wide application. The site went on to use this example:

 

An original house in an older part of town that has two bedrooms and one bathroom could be considered functionally obsolete if all the other original homes in the area are torn down over the years and replaced with five bedroom, three bathroom houses. Because the old house does not have the features that most modern buyers want, it is said to be functionally obsolete, even if it is still in good condition and is perfectly livable.

 

So, if you watch a lot of those TV real estate shows, most of the homes that the potential buyers and/or remodelers are discussing doing major remodeling upon are functionally obsolete. In fact, most older homes that have not been remodeled or “updated” in a major way might fall into that classification. The “cannot be easily changed” part of the definition usually manifests itself as small spaces or the lack of bedroom, baths and family living space within the footprint.

 

Times and tastes have changed since most of the older homes were built. I pretty much know what to expect just by seeing the year that home was built. There are features (or lack thereof) that are representative of the economic state of the country and the home buyer of each era. No one in the 1940’s or earlier (some built well into the 50’s and 60’s) could foresee the need to house more than one car in a garage, so homes built then and earlier had at most single car garages. Many historic houses actually had carriage barns, some of which were converted to garages.

 

Typical houses for the workers of those early eras were usually 1,000 Square Feet in size or smaller. It is not unusual to find whole neighborhoods with 2 and 3 bedroom homes that only had 800-900 Sq Ft of living space when built. Almost all have had some sort of additions put on, but few could really be considered equivalent to modern built homes. Most still have what we would consider to be tiny bedroom with even tinier closets (how did those people get by with only 1-2 pairs of shoes and so few clothes?). Of course there was only one tiny bathroom, with the tub, sink and toilet arrayed down a narrow room that was often less than 6 feet across. Kitchens were small and often had an eat-in area. The “family space” was a small living room. There often wasn’t a dining room. If there was a “family area” it was often in a finished portion of the basement, which also houses the laundry area and all of the mechanicals.

 

When you visit those older homes one comes away wondering how they could have lived like that. You hear stories of families with 3-4 kids being raised in those tiny houses and you just have to shake your head in wonder; yet, if you talk to the people who grew up in those homes, they thought it was natural and wonderful to be so close to everyone else in the family. Of course most of them would never go back to that lifestyle now and that is the basis of the obsolescence of the property.

 

Functional obsolescence is restricted to really old homes. The styles and tastes in America can change dramatically over as little time as a decade. Homes built in the 1980’s and 1990’s have now become functionally obsolete in many buyers eyes, because they may not have been updated to keep up with changing styles and tastes. Some architectural styles have also become less desirable, due to changing tastes. Raised ranches and split levels that were all the rage in the 60’s and 70’s (some built well into the 80’s) are less desirable in the market than more traditional layouts like ranches or colonials of the same era.

 

The style that really caught on in the 90’s and beyond is the Cape Cod or story and a half layout. Builders starting putting everything for the owners on the main level and threw in a couple of bedrooms and a bath for kids or guests on the ½ story upper level. If it is a 4 bedroom layout the 4th bedroom normally is an upper-level guest suite with I t’s own bath. Other modern must have features – a master suite with “on-suite” master bath and walk-in closets, a huge gourmet kitchen with upscale appliances and upscale countertops and a big family room/entertaining area – all housed in an “open floor plan” layout.

 

There are some more modern features that have already run their course and may be on the way to functional obsolescence, such as “volume rooms” – those big two-story high family rooms or great rooms, which many have discovered is a costly to heat waste of space. Dining rooms have been eliminated from many designs, replaced by eat-in areas in the large kitchens or dining areas in the great rooms.

 

At the upscale end of homes features like theater rooms, workout rooms, wine cellars and game rooms are still in demand. Areas may also be set aside and design to meet the needs of specific members of the family, such as crafts room for mom or a toy and play room for the kids. Dad may even have his “man cave” room, although many of them are still in the garage. And speaking of the garage, one must have at least a three car garage these days, preferably one with a workshop area, too. Many upscale homes go well beyond just space for just three cars, since there may be lots of toys to be stored, too.

 

So what is to happen to all of the older houses that may now be viewed as functionally obsolete? It turns out that they are back to serving the purpose that they were originally built for – first homes for younger buyer who can’t afford to buy a modern McMansion in the suburbs. These homes are usually located more closely to the urban areas that are again becoming popular and they are affordable. For young couples just getting started in life a little redecorating and painting and a few trips to Crate and Barrel are all that is needed to create a cozy little starter nest.

 

Cute and cozy are the terms most often used when you happen into one of these older and smaller homes that has been lovingly updated or restored. You may then begin to wonder why anyone needs all of the excess space of a more modern home. Many of the new homeowners in those cute older homes have also adopted a more simple lifestyle (remember that there is still limited closet and storage space) and they seem happier for that, too.

 

In other cases, people will buy a functionally obsolete house and turn it into something much more modern and functional – blowing out walls to open up the cut-up smaller spaces that they started with and re-purposing spaces with the footprint. I usually advise against sacrificing a bedroom to enlarge the master suite, especially if there are only three bedrooms to begin with; however, some 4-bedroom layouts might have enhanced value with only three bedrooms, if the stolen space is used wisely. Of course, add-ons, push-outs or repurposing rooms might also add to the functionality of the house. Functional obsolescence does not have to be permanent.

 

Here are some more readings on this topic (and on a counterpart called Economic Obsolescence), if you care to learn more –

 


 


 


 

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