What is "depreciation" in property valuation?

Depreciation in property valuation refers to the reduction in the value of an asset over time as a result of factors such as wear and tear, aging, or changing market conditions. This concept is essential in real estate and property valuation because it helps assess the current value of a property relative to its original purchase price or construction cost.

As properties are used, they experience physical deterioration and obsolescence, which can decrease their market demand and value. Understanding depreciation allows appraisers and investors to make more informed decisions about property values, potential renovations, and investment strategies. It is a crucial factor in both accounting and real estate to ensure accurate financial reporting and property assessments.