Property Valuation
What does 'depreciation' mean in the context of real estate appraisal?
AThe annual tax deduction allowed by the IRS for investment properties
BAny loss in value from any cause, reducing the property below its replacement cost new✓ Correct
CThe physical wearing out of a building over time only
DA reduction in the loan balance as mortgage payments are made
Explanation
In appraisal, depreciation means any loss in value from any cause — physical deterioration, functional obsolescence, or external obsolescence. It is NOT limited to tax depreciation (which is a bookkeeping concept) or to physical wear alone. Appraisers measure total depreciation to adjust replacement cost in the cost approach.
Related California Property Valuation Questions
- The effective age of a building refers to:
- The 'highest and best use' of a property is defined as the use that meets all four of which criteria?
- Net Operating Income (NOI) is calculated as:
- Which factor would most likely increase the capitalization rate an investor requires for an income property?
- The income approach to value is most commonly used for:
- The principle of progression states that:
- A seller has a home with market value of $750,000. The seller wants to net $700,000 after paying a 6% commission. Can the seller achieve this by listing at $750,000?
- In the cost approach, functional obsolescence refers to:
Practice More California Real Estate Questions
1,500+ questions covering all exam topics. Start free — no signup required.
Take the Free California Quiz →