What type of depreciation arises from the effects of market conditions?

External obsolescence refers to the loss of value of a property due to external factors that are outside the property itself. This type of depreciation is specifically related to market conditions, which can include changes in the neighborhood, economic downturns, or adverse effects from nearby properties or developments.

For instance, if a new highway is constructed next to a residential area, noise and traffic could negatively impact property values in that area, leading to external obsolescence. This is contrasted with functional obsolescence, which deals with issues related to the property's design, layout or amenities that render it less desirable. Physical deterioration focuses on wear and tear from age and usage, while age-life depreciation is a method used to measure the economic life of a property based on its age and remaining lifespan.

Understanding external obsolescence is crucial for real estate professionals when assessing property values and advising clients on market trends, as it highlights how factors beyond the physical structure can significantly affect property worth.