How does depreciation affect property value in appraisals?

Depreciation is a key concept in real estate appraisal that directly impacts property value. When considering how depreciation affects property value, it encompasses the decrease in value that occurs over time due to various factors, such as physical wear and tear, functional obsolescence, or external economic conditions.

In real estate, depreciation can manifest from several sources: physical deterioration generally occurs as a property ages, necessitating repairs and maintenance that reflect the property's condition. Functional obsolescence might arise when a property's design or features become outdated or less desirable compared to newer properties. External obsolescence can occur due to factors outside the property, like changes in the neighborhood's desirability or zoning laws.

Understanding that depreciation is a decrease in property value helps appraisers accurately assess a property's worth in the market. It allows them to factor in the necessary adjustments during the appraisal process, ultimately guiding buyers and sellers in making informed real estate decisions. This aligns with how depreciation is recognized in the approach to valuation, emphasizing its role in reflecting the property's true condition and marketability.