What best describes functional obsolescence in real estate?

Functional obsolescence refers specifically to a decrease in property value that is primarily caused by inadequacies or inefficiencies in the design or layout of the property. This can occur when a property no longer meets the needs or expectations of current buyers or tenants due to outdated features, poor design choices, or a lack of modern amenities.

For instance, a home that has a highly compartmentalized layout, making it less appealing to today's open-concept preferences, may experience functional obsolescence. Similarly, properties that have not been updated to include contemporary technologies or that have physical spaces that are not utilized efficiently may also suffer from this type of obsolescence.

Therefore, the choice that emphasizes design problems captures the essence of functional obsolescence effectively, as it highlights how the physical configuration and usability of a property can lead to a decline in its market value independent of physical condition or external environmental factors.