Definition of "Functional utility"

Sheila Allaire real estate agent

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Sheila Allaireelite badge icon

Exit King Realty

Functional utility in real estate typically defines a property’s usefulness to the homeowner or lessee. The more purposes it can fulfill, the better. For instance, you can call a property’s size sufficient if a professional can work from home, meaning they can use a room as their home office.

What role does functional utility play in home appraisals?

Generally, appraisals study a property’s features and evaluate its functional utility and how it can fulfill its designated purposes. The practical utility is a crucial element appearing in expert real estate appraisals. First and foremost, residential properties must provide sufficient and satisfactory living conditions. Then, we have the commercial real estate, which is examined regarding different features to establish whether it can be an efficient business location.

Buyers pay for a professional real estate appraiser’s services to receive an appraisal value. The meeting will conclude by establishing the property’s estimated financial worth based on real estate comps (residential properties) and the income approach for commercial buildings. 

Common questions during a home appraisal

Right from the start, appraisers would address the topic: “Is the real estate in question inhabitable?” and “Can it fulfill a better use?” Theyanalyze whether the real estate for sale has adequate living standards for its specific value. Besides, they will also determine whether you can turn a residential real estate into a commercial property. 


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Aspects to consider to convert residential into commercial real estate

Consider particular aspects when deciding whether you can convert a residential real estate into a business unit. The building must have functional utility features, such as bay depth, ceiling height, lift speed and security, column spacing, the floor’s load capacity, energy efficiency, parking lot availability, etc. The higher functional utility rating it will receive if the building provides most of these criteria. You must ask yourself: Would buying a commercial property be a better option from the start? 

The significance of functional utility

The total impact of functional usefulness on property value is one of a kind in every instance. When comparing one property to numerous others in assessments, functional utility is merely one of several factors considered for comparison. Suppose the practical utility of any residential or commercial property is generally acceptable and similar. In that case, the influence on value is limited. You can notice a considerable decline in property value when appraisers assess functional utility as restricted or unfeasible compared to comparable properties.

Functional utility for residential real estate

When buying real estate, you might wish to consider how many things you can use it for. Since the global pandemic outbreak, people have had to reshape their lives. Asa result of lockdown and keeping a physical distance, many had to change their working routine. That’s how the concept of remote work became widely adopted. Can your new home be converted into a home office? 

Since people spend much time at home, a residence’s functional utility must address our various needs. It should provide us with enough space for personal recreation for physical exercises, such as gyms and pools. Besides, your children will also require room for entertainment, hopefully, separate from your working area. For this purpose, having a backyard can be a blessing that you can convert into an amusement park. Secondly, a garden can offer you the ultimate source of enjoyment and ease the frustration of being secluded from nature.

Personal creativity can open new frontiers for functional utility. In addition, you can transform a room into your home cinema by installing an eco-friendly TV set. All it takes is an imaginative mind.


New real estate can attain various functional utility purposes based on personal preferences. By contacting expert local real estate agents, you can explore more options your house can fulfill!

Comments for Functional Utility

Mindy Slaughter Mindy Slaughter said:

I am seeking some advice on adjusting the valuation of a single family detached home and parcel with a multitude of adverse impact factors. It is locates within a Special Flood Hazzard Area (AE Flood Zone and Regulatory Floodway). The pre-existing structure can be categorized as legal non-conforming/grandfathered in (built 1962). Subject property shares a access driveway with adjacent parcel and is recorded to restrict development of the sections along side of driveway (rendering this portion of the parcel unusable except for purposes of access). The elevation of the home structure and adjacent storage structures are all significantly below the required base foundation elevation standards. The property was inundated during the 2016 Flood, and all structures suffered water damage. As per FEMA 50% Rule, age of home and construction code deficiencies, any future flood occurrence, or efforts to make improvements will result in the mandate for home to be raised to meet BFE. Local Municipal Code essentially prohibits any additional structures, changes to land characteristics (digging or bringing in fill), as well as additional construction of impervious surfaces. To sum this up, the property has to stay exactly as it is, and if mortgaged requires flood insurance, but any claim will provoke the FEMA 50% Rule. Estimated costs to raise the home structure are significantly higher than the estimated value. Current appraisal has estimated valuation considering the depreciation of certain aspects and utilizing comps from similarly sized homes/parcels, but has not factored the Special Flood Hazard/AE Zone/Regulatory Floodway/FEMA 50% Rule and potential costs to raise the home (estimated 250k). If you can, please provide any information pertaining to how these factors should be calculated in the final valuation of the property.

Jul 04, 2023  23:16:49

Real Estate Agent

Hello Mindy!

Thank you for contacting us! Every state has different requirements on how frequently property reassessments must take place. Tax assessors are in charge of conducting real estate revaluation. They identify, record, and value taxable properties considering particular circumstances like yours. In exceptional cases (elderly or disabled owners), they can even grant tax exemptions as well. Sometimes, they can hire private firms to assist them in reevaluating your home’s worth, its fair and full value. We recommend you turn to a real estate attorney specializing in this field and/or your municipality (or local government.)

Jul 17, 2023  10:02:17
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