What does the term depreciation refer to in real estate?

Depreciation in real estate refers specifically to the loss of value in a property over time due to various factors. This loss can arise from physical wear and tear, economic pressures, changes in the neighborhood, or modifications in market conditions. Depreciation is a fundamental concept as it impacts property valuations, investment analyses, and tax implications for real estate owners.

For example, a building may lose value because it is aging and requires repairs, or it may experience depreciation due to market trends that reduce demand in a particular area. Understanding depreciation helps real estate professionals assess property value accurately and guide clients in investment decisions, tax deductions, and potential renovation needs.