How does depreciation impact the value of a property?

Depreciation typically leads to a decrease in the value of a property over time. This concept is fundamental in real estate and appraisal, as depreciation accounts for the loss of value due to various factors, including physical deterioration, functional obsolescence, and external economic changes.

Physical deterioration refers to the wear and tear that occurs as buildings and structures age, which can make them less appealing and lower their market value. Functional obsolescence might occur when a property no longer meets current market demands, such as when outdated layouts or features fail to attract buyers. External factors, like a decline in the neighborhood or changes in the local economy, can also reduce property values.

Understanding how depreciation works is crucial for appraisers and anyone involved in real estate because it directly influences assessments and investment decisions. While some properties may appreciate over time due to market trends, depreciation remains a critical factor in calculating a property's worth and should always be considered.