What can cause a loss of value due to economic conditions surrounding a property?

The correct answer is external obsolescence, which refers to a loss of property value due to external factors that are beyond the property owner's control. This can include changes in the local economy, such as a downturn in the job market, the construction of a new highway that redirects traffic away from the property, or the development of undesirable land uses nearby, such as factories or waste disposal sites.

External obsolescence differs from physical deterioration, which is related to the wear and tear of the property itself, and functional obsolescence, which typically involves a property's design or layout that is no longer considered desirable or efficient. Market saturation, while also significant, refers to an excess supply of properties, which can drive down prices, but it is more about the balance of supply and demand in the marketplace rather than external factors directly affecting a single property. Thus, external obsolescence specifically addresses the loss of value tied to external economic conditions surrounding the property.