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The plywood on my front door is rotten as you can see here (there are few stair steps)

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There is a roof on top of it covering the front door area

I suspect water still can get in and sit on top

Is it correct that plywood supposed to be used here? Should it be decking board? To let water running down?

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Nope, it's not normal, but it isn't necessarily incorrect. Actually, you can see the ends of the original planks under the plywood...just above the old rot in the top stair riser and next to another plywood patch. However, it can continue to work if polyurethane or paint were maintained.

There is pressure-treated plywood for exterior use that could be used when this rots out, if you like the look. But again no, traditional natural exterior grade wood is the only "correct", but many today even go with backyard deck type pressure-treated planks (not panels).

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Outside surfaces can handle water in one of three ways:

  • Permeable surface - e.g., grass, gravel
  • Gaps - e.g., deck boards/planks, pavers (but if they are installed close enough together then they are an impermeable surface)
  • Slope - Any impermeable surface - be it plywood (but preferably pressure-treated), asphalt, concrete, pavers (installed close together) - needs a slope so that rain will naturally drain off to one side. In addition, the side where it drains off needs to be able to handle the excess water, which sometimes requires additional work but that depends on the size of the impermeable area and other factors.

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