What term is used to describe the difference between the market value of an improvement and its cost at the time of appraisal?

The term that describes the difference between the market value of an improvement and its cost at the time of appraisal is depreciation. Depreciation reflects the reduction in value of an asset over time due to various factors, including physical wear and tear, functional obsolescence, and external economic influences. In the context of property appraisal, when the market value of an improvement is less than its cost, it indicates that the improvement has deteriorated or is less desirable than what was initially invested, illustrating the concept of depreciation.

Understanding depreciation is essential for appraisers, as it influences property values and helps in accurate market assessments. It allows for a clear distinction between the original construction costs and the current market perceptions, thereby informing property owners, investors, and stakeholders about the real value of their assets over time.