What does the term "depreciation" refer to in appraisal?

The term "depreciation" in appraisal specifically refers to the reduction in property value due to various factors, which may include physical wear and tear, functional obsolescence, or external economic changes. This concept is an essential aspect of determining the value of a property, as it recognizes that the value may decline over time for multiple reasons, affecting how properties are assessed for taxation and valuation purposes.

Understanding depreciation is crucial for appraisers, as it allows them to factor in the current state of the property and any external influences when estimating its fair market value. This analytical process helps provide a more accurate representation of a property’s value in the current market, guiding both buyers and sellers in their decision-making and ensuring that assessments reflect real-world conditions.