Depreciation

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Depreciation is the difference between the replacement or reproduction cost of the improvement new at the time of the appraisal and the contributory (market) value at the time of the appraisal.

 

Depreciation is the loss in property value from all causes.  The total dollar amount of depreciation is the difference between the cost of constructing the improvement new and its value at the time of the appraisal.

 

Depreciation is divided into three classes:

 

Physical deterioration
Functional obsolescence
External obsolescence (also called economic obsolescence, environmental obsolescence, and locational obsolescence)

 

Accumulated or accrued depreciation refers to the total depreciation from all causes.

 

Loss of property value from all causes except those due to physical deterioration is usually referred to as obsolescence.  Obsolescence generally refers to functional and external factors whereas value losses due to physical deterioration is referred to as deterioration.

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