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IV. DEPRECIATION <br /> Simply stated, depreciation can be defined as "a loss in <br /> value from all causes". In real estate it is generally <br /> attributed to three major causes: Physical deterioration, <br /> functional obsolescence, and economic obsolescence. <br /> A structures expectancy of life--both physical and <br /> economic--is longest the day the key is handed over by the <br /> builder. The building is most desirable. It is most <br /> useful. The future benefits the occupant may expect to <br /> enjoy are at the maximum. From that day forward, however, <br /> decay and wear and tear act to lessen the value of the <br /> structure by curtailing its remaining capacity for use <br /> (physical depreciation) . At the same time the structure is <br /> "wearing out" it is also "going out of style". It is <br /> becoming less desirable. It is progressively becoming less <br /> useful both from the effect of forces within the property <br /> (functional obsolescence) , and outside of it as well <br /> (environmental or economic obsolescence) . <br /> Physical deterioration is the most commonly recognized cause <br /> of depreciation. It is readily observed as the decaying <br /> effect of the elements (and/or lack of maintenance) , in <br /> conjunction with the chronological age of the structural <br /> components of the building. The condition may be considered <br /> either "curable" or "incurable", depending upon whether it <br /> may or may not be practical and economically feasible to <br /> cure the deficiency by repair and replacement. <br /> Functional Obsolescence is a condition caused by either <br /> inadequacies or over-adequacies in design, style, <br /> composition, or arrangement inherent to the structure itself, <br /> which tend to lessen its usefulness as related to present <br /> day desires. Like physical deterioration, the condition may <br /> be considered either curable or incurable. Some of the more <br /> common examples of functional obsolescence are excessive <br /> wall and ceiling heights, excessive structural construction, <br /> surplus capacity, ineffective layouts, and inadequate <br /> building services. <br /> Economic Obsolescence is a condition caused by factors <br /> extraneous to the property itself, such as changes in <br /> population characteristics and economic trends, encroachment <br /> of inharmonious property uses, governmental restrictions <br /> and etc. . .The condition is generally incurable in that <br /> the causes lie outside the property owner's realm of <br /> control. <br />