Real Estate Term of the Day: Depreciation & Obsolescence

Real Estate Term of the Day: Depreciation & Obsolescence

DEPRECIATION – an decrease in the value of property due to obsolescence (Barron’s Dictionary of Real Estate Terms)

OBSOLESCENCE – a loss in value due to reduced desirability and usefulness of a structure because its design and construction have become obsolete; loss due to a structure becoming outdated, not in keeping with modern needs, with consequent loss of income (Barron’s Dictionary of Real Estate Terms)

Other causes for property/real estate depreciation may include:

  • Physical deterioration – loss of value from all causes of ace and action of the elements (e.g. DEFFERED MAINTENANCE, breakage, effects of age on construction material and normal wear & tear)
  • Functional obsolescence – loss of value from all causes within the property except those due to physical deterioration (e.g. a poor floor plan, outdated plumbing fixtures, outdated home compared to others in the neighborhood)
  • Economic obsolescence – loss of value from all causes outside the property itself (e.g. changes in local & nation economy, recession, significant job loss in an area, construction of industrial plants nearby, highway construction, etc)

See also: APPRECIATION


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