What is the formula for economic obsolescence?

The formula for economic obsolescence is determined by assessing the impact of external factors on a property's value, typically by comparing its rent to that of similar properties in the market. The correct formula is:

Comparative rent divided by Subject rent, then multiplied by the Gross Rent Multiplier (GRM).

This formula effectively captures the concept that economic obsolescence, which may arise from external environmental factors such as location decline, changes in neighborhood desirability, or economic downturns, diminishes the revenue potential of the property relative to its competitive peers. By using comparative rent, the formula assesses how much less rent the subject property can command compared to others in a similar category, allowing for a clearer understanding of lost income and value associated with these external factors. The inclusion of GRM allows for further conversion of rental income differences into value impacts reflecting the economic state of the property.