====== Depreciation ======

**Depreciation** is the **loss of value** of real property due to **all causes**.

===== Key Characteristics =====
  * Used in the **cost approach** to value
  * Refers to **loss in market value**, not tax depreciation
  * Applies to **improvements**, not land
  * May be **curable or incurable**

===== Causes of Depreciation =====
  * **[[Physical Deterioration]]**
    * Wear and tear from use or age
    * Examples: roof wear, peeling paint

  * **Functional [[Obsolescence]]**
    * Loss of value from outdated design or features
    * Examples: poor floor plan, outdated systems

  * **External (Economic) Obsolescence**
    * Loss of value from outside influences
    * Examples: nearby freeway, zoning changes
    * Almost always **incurable**

===== Curable vs Incurable =====
  * **Curable**
    * Cost to fix is less than value added
    * Example: replacing worn carpet

  * **Incurable**
    * Cost to fix exceeds value added
    * Example: proximity to industrial site

===== Depreciation in Appraisal =====
  * Depreciation is subtracted from replacement cost
  * Formula: **Replacement Cost − Depreciation + Land Value**

===== Exam Tip =====
  * Land does **not depreciate**
  * External obsolescence is **never owner-caused**