What does depreciation refer to in property valuation?

Depreciation in property valuation refers to the decrease in value of a property over time, which can occur due to various factors such as age, wear and tear, or changes in market conditions. Real estate values can fluctuate, and external factors, like neighborhood development or economic shifts, can reduce a property's perceived value.

Understanding depreciation is crucial for mortgage loan officers as it affects loan-to-value ratios and can influence lending decisions. When assessing the value of a property, recognizing depreciation helps ensure accurate appraisals and informs buyers and investors about the potential long-term value of their investment.

Other options reflect different concepts: the rise in market value pertains to appreciation, the total expenditure on repairs relates to maintenance costs and not value, and the initial purchase price does not account for changes over time. These distinctions are important in property valuation and assessing investment viability.