Property Valuation
Which of the following statements about depreciation in the cost approach is correct?
AAll depreciation in the cost approach is physical
BDepreciation includes physical deterioration, functional obsolescence, and external obsolescence✓ Correct
COnly physical depreciation is included in the cost approach
DDepreciation is limited to the building's tax depreciation
Explanation
In the cost approach, total depreciation includes all three forms: physical deterioration (wear and tear), functional obsolescence (design or feature deficiencies), and external (economic) obsolescence (outside factors reducing value).
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