Which category of depreciation is caused by physical wear and tear?

Physical deterioration is the category of depreciation that specifically refers to the loss in value of a property due to its physical condition and aging. This type of depreciation is a direct result of tangible, observable factors such as wear and tear from use, exposure to the elements, or lack of maintenance over time.

As components of a property, like roofs, plumbing, and paint, experience deterioration, they contribute to an overall decrease in the property’s market value. The assessment of physical deterioration often focuses on the cost to repair or replace these components to restore the property to its original state. Understanding physical deterioration is crucial for real estate professionals as it directly impacts property valuation and the timing of maintenance or improvements.

Other forms of depreciation, such as functional obsolescence and external obsolescence, relate more to factors that affect desirability and market perception rather than the physical state of the property itself. Functional obsolescence might arise from outdated design or features that no longer appeal to buyers, while external obsolescence is linked to external factors such as neighborhood decline or zoning changes. Cost depreciation isn't a standard classification but rather an overall reference to financial depreciation in property value.