What does the term "depreciation" mean in real estate appraisal?

In real estate appraisal, "depreciation" refers to a loss in property value due to various factors that affect its worth negatively over time. This could include physical depreciation from wear and tear, external factors such as changes in the neighborhood or economic conditions, and functional obsolescence that arises from shifts in design trends or market preferences.

Understanding depreciation is crucial for appraisers, as it directly influences property assessments and market value determinations. While other terms relate to property value changes or financial impacts, depreciation specifically identifies and quantifies the factors that lead to a decline in value, making it a fundamental concept in appraisals.