Physical deterioration and functional obsolescence are further divided into two-sub categories:
curable and incurable depreciation
.
What are the physical deterioration?
Physical deterioration is
the loss in the physical efficiency of an asset as it ages
. Efficiency in this context refers to the asset’s ability to produce a quantity of capital services for a given amount of inputs. It is a synonym for “wear and tear” or “ decay”.
What is physical deterioration in real estate?
Physical deterioration refers to
the loss in value of a real estate property due to the physical wearing out of a building
. It can also describe the normal wear and tear that buildings experience as they age.
What is a physical obsolescence in real estate?
Physical obsolescence is
the decline in a property’s valuation due to physical depreciation or gross mismanagement
. It is a given that there will be physical deterioration in all real estate assets over time, but it can be managed with a proactive maintenance and replacement program.
What are two types of physical depreciation?
Depreciation is divided into two types:
physical deterioration and obsolescence
. Physical deterioration, as the name implies, is a loss in value due to normal aging and deterioration.
What is physical deterioration curable?
Curable physical deterioration is defined as: “…
items of deferred maintenance
; the estimate of curable physical deterioration applies only to. items in need of repair on the date of the appraisal.”
What causes physical deterioration?
Physical deterioration refers to the wear and tear that buildings experience as they age, which results in a loss of value. Physical deterioration may be due to the action of elements such as
floods, earthquakes, fire, ultraviolet sunlight, wind
, etc.
What is functional or physical obsolescence?
Functional obsolescence in real estate describes
a property that has decreased in desirability or functionality
due to an outdated design feature, physical deterioration, or undesirable external factors.
How do you calculate physical deterioration?
In order to find the physical deterioration,
take the asset’s anticipated physical life (how long it is supposed to last) and divide it by the effective age
. For an example of this concept, assume an asset has a physical life of 10 years and an effective age of 5 years.
What is meant by deterioration in economics?
Occurs when
the price of a nation’s exports decreases relative to the price of its imports
.
What is an example of functional obsolescence in real estate?
What Is Functional Obsolescence? … For example, in real estate, it refers to
the loss of property value due to an obsolete feature
, such as an old house with one bathroom in a neighborhood filled with new homes that have at least three bathrooms.
What are the three types of obsolescence?
- Functional Obsolescence: …
- Economic Obsolescence: …
- Physical obsolescence:
What is highest and best use in real estate?
Highest and Best Use, Defined
The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, and financially feasible and that results in the highest value
.
What are the main categories of depreciation?
When it comes to a business’ personal property assessments, there are three forms of depreciation:
physical, functional obsolescence, and economic obsolescence
.
What do you mean by physical depreciation?
Physical Depreciation.
The decline in property value due to
the physical action of time and the elements, as well as through usage. Deterioration through physical depreciation is normally the result of inadequate maintenance or normal weathering and decay. P2E2.
Is physical depreciation curable?
Keep in mind that physical deterioration is not a form of obsolescence.
Most forms of physical deterioration are curable
.
