How is depreciation defined?

Depreciation refers to the reduction in the value of an asset over time, especially due to wear and tear, aging, or obsolescence. In the context of real estate, it indicates how the value of a property might decrease due to various factors such as physical deterioration, economic downturns, or changes in neighborhood dynamics. Recognizing that depreciation signifies a loss in value is critical for understanding property valuation, as it affects how properties are assessed and priced in the market.

The other options do not encapsulate the concept of depreciation accurately. A gain from cost does not reflect the idea of value loss. Mortgages and foreclosures pertain to financial and legal aspects of property ownership rather than the intrinsic decline in asset value. Lastly, a loss from scarcity of a product suggests an economic principle related to supply and demand that is not relevant to the definition of depreciation. Hence, understanding depreciation as a loss in value is essential in real estate appraisal and valuation practices.