Depreciation describes a decrease in value due to physical deterioration, functional obsolescence, or economic obsolescence.

Depreciation describes a decrease in value due to physical deterioration, functional obsolescence, or economic obsolescence.

• A. Appreciation
• B. Amortization
• C. Depreciation
• D. Inflation

Answer: (C)

Depreciation in real estate refers to a drop in a property's value over time caused by wear and tear, plus obsolescence. Physical deterioration means the building itself ages—things like a leaking roof or cracked foundation reduce value. Functional obsolescence happens when the design becomes less useful or appealing (for example, an outdated layout or small rooms that don’t meet modern needs). Economic obsolescence is about external factors outside the property, such as a declining neighborhood or nearby changes that reduce desirability or utility. The central idea is that depreciation describes a loss in value, not a gain. This is different from appreciation, which is an increase in value due to market demand or improvements, and from inflation, which is a general rise in prices across the economy. Amortization relates to spreading out a debt or deduction over time, not the property's value change. So the statement correctly identifies depreciation as the decrease in value caused by physical deterioration, functional obsolescence, or economic obsolescence.

Depreciation in real estate refers to a drop in a property's value over time caused by wear and tear, plus obsolescence. Physical deterioration means the building itself ages—things like a leaking roof or cracked foundation reduce value. Functional obsolescence happens when the design becomes less useful or appealing (for example, an outdated layout or small rooms that don’t meet modern needs). Economic obsolescence is about external factors outside the property, such as a declining neighborhood or nearby changes that reduce desirability or utility. The central idea is that depreciation describes a loss in value, not a gain. This is different from appreciation, which is an increase in value due to market demand or improvements, and from inflation, which is a general rise in prices across the economy. Amortization relates to spreading out a debt or deduction over time, not the property's value change. So the statement correctly identifies depreciation as the decrease in value caused by physical deterioration, functional obsolescence, or economic obsolescence.