Depreciation in appraisal is defined as the loss in value of an improvement from any cause, measured against the cost of the improvement as new. It has three primary causes: physical deterioration, functional obsolescence, and external (economic) obsolescence.
Each form of depreciation can be either curable (where the cost to cure is less than or equal to the resulting value increase) or incurable (where curing is not economically justified). The classification matters because curable items are typically valued at their cost to cure, while incurable items are valued using ratios, capitalized rent loss, or paired-sales analysis.
Several methods can be used to quantify total accrued depreciation: the economic age-life method, the modified economic age-life method, the breakdown method, and the market extraction method. The questions on this page test understanding of these concepts and their proper application.