What does the term "depreciation" in real estate typically refer to?

The term "depreciation" in real estate refers to the decrease in property value over time. This decline can occur for various reasons, such as wear and tear on the property, changes in the local real estate market, or external factors such as neighborhood decline or changes in zoning laws. Depreciation is an important concept for appraisers because it affects the overall valuation of a property.

When appraisers evaluate a property, they take into account the property's physical condition, its location, and market trends that may influence its worth. Understanding how depreciation affects property value allows appraisers to make more informed assessments when determining the fair market value of a property, which is crucial for buyers, sellers, and lenders alike.

In contrast, an increase in property value over time, known as appreciation, refers to the opposite phenomenon. Additionally, while the cost of repairs and maintenance pertains to expenses incurred in maintaining a property, and market fluctuations describe the variations in property prices due to market dynamics, neither of these is synonymous with depreciation itself.