How does depreciation affect property value in an appraisal?

Depreciation affects property value by reducing it due to factors such as age, physical deterioration, or obsolescence. In appraisal practice, depreciation is a significant consideration because it recognizes that as properties age and undergo wear and tear, or as market preferences change, their value may decrease.

This reduction in value is not merely a reflection of physical aging; it also encompasses economic and functional obsolescence. For instance, a property may lose value if it has outdated features that are no longer desirable in the current market, or if external factors, such as changes in the neighborhood, affect its appeal. Thus, accounting for depreciation is essential when determining a property's current market value, as it provides an accurate assessment by acknowledging the loss of value over time due to these various factors.