Only applies to IMPROVEMENTS — land never depreciates
Before you read
Test yourself first: 5 questions
Question 1 of 5
Which of the following is one of the THREE types of depreciation recognized in the cost approach?
Answer: B. The three appraisal types of depreciation are physical deterioration, functional obsolescence, and external (economic) obsolescence; the other choices are accounting concepts.
Question 2 of 5
Of the three types of depreciation, which is the only one whose cause is located ENTIRELY outside the property's boundaries?
Answer: C. External (economic) obsolescence originates from factors outside the property, such as neighborhood, traffic, or economic conditions, while the other two types arise within the property itself.
Question 3 of 5
An appraiser values a 20-year-old duplex. The most reliable approach is likely:
Answer: B. Small residential income property leans on comparable sales and the income approach; reconciliation weighs them. Cost is weakest for older buildings (depreciation is hard to estimate), and GRM alone is a rough check, not a primary method.
Question 4 of 5
Accrued depreciation in the cost approach represents:
Answer: A. Accrued depreciation is the cumulative loss in value (physical, functional, external) subtracted from current building cost.
Question 5 of 5
A worn carpet that's cheap to replace is an example of:
Answer: A. Curable depreciation costs less to fix than the value it adds back; incurable items aren't economically worth repairing.
Keep the streak going with more questions like these, each with a full rationale.
Must-know rules
- Physical deterioration: wear & tear — usually CURABLE (paint, roof)
- Functional obsolescence: outdated design — 1-bath 5-bed, no closets; curable if fix cost ≤ value added
- External (economic) obsolescence: outside causes — airport noise, declining area — ALWAYS incurable
- Only applies to IMPROVEMENTS — land never depreciates
- Appraisal depreciation ≠ tax depreciation (that's cost recovery)
Depreciation — The Three Killers: FAQs
Is Depreciation — The Three Killers on the real estate exam?
Yes. Valuation & Appraisal is a scored domain on the real estate licensing exam, and this topic appears in the national portion.
Is this cheat sheet free?
Yes — every page on Cinna RE's resource library is free to read, print and share. The app adds practice questions, mock exams and a readiness score.
