What does the term 'functional obsolescence' relate to in real estate valuation?

Functional obsolescence refers specifically to the loss in value of a property due to design or utility issues that make it less desirable or less functional compared to current standards or competitors. This could be due to various factors, such as outdated layouts, inadequate amenities, or inefficient designs that do not meet modern usage requirements. For example, a home with a very small kitchen or insufficient bathrooms for the number of bedrooms could experience functional obsolescence, as these issues detract from its appeal to potential buyers or tenants, leading to a decrease in market value.

The other options refer to different aspects of property valuation. For instance, wear and tear due to age generally relates to physical deterioration rather than design deficiencies. Market fluctuations influence overall property values but do not pertain to intrinsic design-related issues. Lastly, tax assessments reflect the value as determined by local government criteria and do not consider the functional aspects of the property itself. Therefore, the focus on design or utility issues in choice B captures the essence of functional obsolescence accurately.