What is the definition of "depreciation" in real estate valuation?

The definition of "depreciation" in the context of real estate valuation is accurately described as the reduction in value of a property over time due to wear, tear, or obsolescence. This concept recognizes that various factors such as physical deterioration, functional obsolescence (which might include outdated designs or features), and external obsolescence (like changes in the neighborhood or market conditions) contribute to a decrease in the property's value.

In real estate valuation, understanding depreciation is crucial as it affects how property values are assessed and can influence investment decisions, property management strategies, and tax assessments. Over time, all properties experience some degree of depreciation, which must be accounted for to arrive at a fair and accurate market value. Overall, this concept is a fundamental aspect of property appraisal and valuation methods, ensuring that investors and stakeholders have a realistic understanding of a property's market worth at any given time.