How can depreciation be classified in real estate appraisal?

In real estate appraisal, depreciation can indeed be classified into various forms, which is why the answer is correct. Depreciation is generally categorized into three main types: physical deterioration, functional obsolescence, and economic obsolescence.

Physical deterioration refers to the wear and tear a property experiences over time, resulting from age, weather elements, and general usage. Functional obsolescence is related to a property’s design or layout that may limit its use or reduce its market value, such as outdated features that do not meet current buyer expectations. Economic obsolescence, on the other hand, arises from external factors affecting the property, such as changes in the economy, zoning laws, or neighborhood conditions that can diminish property value.

By recognizing that depreciation can be categorized into these three distinct forms—economic, physical, and functional—the appraisal becomes more comprehensive and allows for a more accurate estimation of value based on the influences affecting a property.