What does the term "depreciation" refer to?

The term "depreciation" refers specifically to a decrease in property value as the asset ages or due to other factors such as physical wear and tear, functional obsolescence, or external economic conditions. In the context of real estate, depreciation is important because it affects the overall valuation of a property. As properties age, they generally require more maintenance and may lose value compared to newer properties. This concept is fundamental in appraisal practices as it helps appraisers determine the current market value of a property based on its condition and age, influencing how potential buyers and investors perceive its worth. Understanding depreciation allows appraisers to account for factors that can diminish property value, which is essential in providing accurate appraisals for clients.