Which type of depreciation is typically associated with external factors affecting a property?

Economic obsolescence refers to a reduction in a property's value due to external factors that are not related to the property's physical condition or design. This form of depreciation often stems from changes in the surrounding environment, such as a decline in neighborhood desirability, new regulations, or external economic conditions that can negatively impact property value.

For instance, if a highway is built nearby that increases noise and traffic, or if a local factory closes down leading to job loss in the area, the value of homes in that vicinity may significantly decrease due to these external influences. This type of depreciation is considered beyond the control of the property owner, as it is based on external factors affecting the broader real estate market or community.

Physical depreciation is related to the wear and tear of the property itself, while functional obsolescence is connected to deficiencies within the property that make it less desirable or less efficient. Curable depreciation pertains to issues that can be economically addressed or repaired to restore value. In this context, economic obsolescence aligns directly with outside forces impacting property value, underscoring its significance in the valuation process.