What is considered the major cause of depreciation?

What is considered the major cause of depreciation?

• A. Wear and tear
• B. Functional obsolescence
• C. Obsolescence
• D. Deferred maintenance

Answer: (C)

The major cause of depreciation in real estate is often attributed to obsolescence, which encompasses the loss of value due to various changes in external factors or market trends affecting a property's desirability. Obsolescence can be broken down into two main categories: economic and functional. Economic obsolescence refers to factors outside the property that diminish its value, such as changes in the economy, neighborhood decline, or new zoning regulations. This type of obsolescence is typically beyond the control of the property owner and can have a significant impact on market value. Functional obsolescence, while a significant factor in depreciation, is more focused on the property's design and layout, which may not appeal to modern buyers but does not consider external influences driving value down. While wear and tear and deferred maintenance are indeed important contributors to a property's depreciation, they largely fall under the category of physical depreciation rather than the overarching concept of obsolescence as the major cause. Therefore, understanding that obsolescence broadly captures the decline in value due to external factors makes this choice the most comprehensive explanation for the major cause of depreciation in real estate.

The major cause of depreciation in real estate is often attributed to obsolescence, which encompasses the loss of value due to various changes in external factors or market trends affecting a property's desirability. Obsolescence can be broken down into two main categories: economic and functional.

Economic obsolescence refers to factors outside the property that diminish its value, such as changes in the economy, neighborhood decline, or new zoning regulations. This type of obsolescence is typically beyond the control of the property owner and can have a significant impact on market value.

Functional obsolescence, while a significant factor in depreciation, is more focused on the property's design and layout, which may not appeal to modern buyers but does not consider external influences driving value down. While wear and tear and deferred maintenance are indeed important contributors to a property's depreciation, they largely fall under the category of physical depreciation rather than the overarching concept of obsolescence as the major cause.

Therefore, understanding that obsolescence broadly captures the decline in value due to external factors makes this choice the most comprehensive explanation for the major cause of depreciation in real estate.