In terms of depreciation, how is physical deterioration assessed?

Physical deterioration is assessed by evaluating necessary repairs and the wear that a property has experienced over time. This involves a thorough inspection of the property to identify any physical issues that may have arisen due to aging, weathering, or lack of maintenance. It encompasses aspects such as structural integrity, the condition of building systems (like plumbing and electrical), and the overall physical state of the property. This assessment allows appraisers to estimate how much the property's value may have decreased due to these physical issues.

Relying solely on aesthetic factors doesn't provide a comprehensive view of physical deterioration, as it neglects underlying structural concerns and functional aspects of the property. Analyzing rental yields focuses more on income-generating potential rather than the physical condition of the asset itself. Observing market trends in nearby sales can illuminate external market influences but does not directly reflect the physical condition of a specific property. Hence, the correct approach involves a detailed evaluation of repairs and the wear characteristics that have developed over time.