What are the three types of depreciation considered in real estate valuation?

The three types of depreciation considered in real estate valuation are physical depreciation, functional obsolescence, and external obsolescence.

Physical depreciation refers to the wear and tear on a property over time due to age and use, which ultimately reduces its value. This can occur through deteriorating materials, damage from the environment, or simply aging structures that require maintenance and repairs.

Functional obsolescence occurs when a property’s design or features become less desirable or less useful than current standards or market preferences. This can arise from outdated layouts, lack of modern amenities, or any design element that detracts from the property's functionality and overall desirability in the eyes of potential buyers.

External obsolescence results from external factors that negatively impact the property's value, such as changes in the surrounding environment or economic shifts. This can include things like increased traffic from new road construction, rising crime rates in the neighborhood, or a decline in the local economy that makes an area less attractive to buyers.

In contrast to the correct choice, other answers mention either financial depreciation or emotional depreciation, which are not recognized categories within the standard framework of real estate valuation. Financial considerations impact investment decisions but do not categorize depreciation of physical property. Emotional depreciation, on the other hand, is not a