What type of depreciation is caused by external factors negatively affecting property value?

External obsolescence refers to a form of depreciation that occurs when external factors outside of the property itself negatively impact its market value. This can include adverse developments in the surrounding area, such as changes in the neighborhood that make it less desirable (like the construction of a landfill nearby, increased crime rates, or a significant decrease in local economic conditions).

Unlike functional obsolescence, which is related to issues within the property (such as outdated features or poor layout), or physical deterioration, which pertains to the physical condition and wear of the property itself, external obsolescence is specifically linked to factors beyond the control of the property owner. It emphasizes how the external environment can significantly influence property valuations, highlighting the importance of location and neighborhood dynamics in real estate.

Therefore, the correct answer captures the essence of how external factors can impair the value of a property, making it a critical concept to understand in real estate practice.