Property ValuationIntermediateArizona Exam

Depreciation in real estate appraisal is defined as:

AThe annual decrease in property tax assessed value
BAny loss in value from any cause relative to the cost of a new replacementCorrect
CThe physical wearing out of a building from use over time exclusively
DThe reduction in mortgage balance through amortization payments

Why Any loss in value from any cause relative to the cost of a new replacement Is Correct

Answer B: Any loss in value from any cause relative to the cost of a new replacement

In appraisal, depreciation is any loss in value from any cause — including physical deterioration, functional obsolescence, and external obsolescence — measured relative to the cost of constructing a new replacement.

Exam Tip: Property Valuation

Valuation questions focus on the three approaches to value: sales comparison, cost, and income. Know which approach is best for which property type. The income approach uses cap rate and NOI — memorize these formulas.

Key Property Valuation Terms in This Question

Amortization

The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.

Appraisal

A professional estimate of a property's market value prepared by a licensed or certified appraiser.

Depreciation

A reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.

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