In the cost approach to property valuation in BC, what does 'depreciation' refer to?
Correct Answer
D) The loss in improvement value from physical deterioration, functional obsolescence or external obsolescence
In the cost approach, depreciation represents the loss in value of improvements from three sources: physical deterioration (wear and tear), functional obsolescence (outdated design or features), and external/economic obsolescence (factors outside the property such as market changes or neighbourhood decline). The replacement or reproduction cost of improvements is reduced by total depreciation, then added to land value.
Why This Is the Correct Answer
Option D is correct because in the cost approach, depreciation represents the loss in value of improvements (not land) from three sources: physical deterioration (wear and tear, aging), functional obsolescence (outdated design, layout, or features), and external/economic obsolescence (factors outside the property like market decline, environmental contamination, or adverse zoning changes). The total depreciation is deducted from replacement or reproduction cost, and the result is added to land value.
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