When using the cost method of appraisal, what must be considered for depreciation?

When employing the cost method of appraisal, it is essential to take into account various forms of depreciation that can affect the value of the property being appraised. Depreciation in this context refers to the reduction in value due to various factors that can diminish the property’s overall worth over time.

Physical obsolescence relates to deterioration that occurs from wear and tear or damage to the property, which can lessen its market value. Functional obsolescence arises from changes in market needs or advancements in building standards, which renders older features or designs less desirable or effective. Economic obsolescence reflects external factors that impact property value, such as changes in the surrounding area or economic downturns.

Recognizing these three types of obsolescence is integral to accurately assessing a property’s current value and understanding how depreciation can significantly influence it. This comprehensive approach ensures a more precise estimation of the property's worth, allowing for informed decisions regarding taxation and investment.

Market trends and conditions, location advantages, and the age of the property are relevant factors in property valuation but do not encompass the broader aspects of depreciation that are crucial in the cost approach. Therefore, assessing physical, functional, or economic obsolescence is central to properly addressing depreciation in the context of the cost method of