Texas Property Tax Consultant Practice Exam

How is depreciation defined in terms of property value loss?

1. Only external sources

2. Physical, functional, and economic obsolescence

3. Physical curable and functional obsolescence

4. Physical, functional curable and functional incurable obsolescence

The correct answer is: Physical, functional, and economic obsolescence

Depreciation in the context of property value loss encompasses three main categories: physical obsolescence, functional obsolescence, and economic obsolescence. Physical obsolescence refers to the loss in value that a property experiences due to wear and tear over time, often due to age or weathering. Functional obsolescence relates to factors that make a property less useful or desirable, such as outdated design or poor layout, while economic obsolescence is external to the property and arises from adverse economic conditions in the surrounding area, like a declining neighborhood or changes in market demand. By encompassing all three of these forms of depreciation, the correct option provides a comprehensive understanding of how different factors contribute to the overall loss in property value. Each aspect illustrates a unique way that property value can diminish, reflecting the diverse range of issues that property appraisal professionals must consider when evaluating properties for tax assessments or market value.