What does depreciation refer to in the context of property?

Depreciation in the context of property specifically refers to the reduction of value due to age, use, and wear and tear. This concept is crucial for appraisers and real estate professionals, as it helps assess the current value of a property by accounting for its physical deterioration and the decline in utility that occurs over time.

As properties age, they typically require repairs, maintenance, and updates to remain competitive in the market, which can impact their overall valuation. Depreciation can occur in various forms, such as physical depreciation (wear and tear), functional obsolescence (inefficiencies, outdated designs), or economic obsolescence (decreased demand due to external factors).

Understanding depreciation is essential for accurate property valuation, especially when comparing similar properties or determining tax implications. It allows appraisers to present a more realistic and fair assessment of a property's worth.