breakdown method

breakdown method

In appraisal,the process of dividing depreciation into separate components, assigning a weight to each one, and then arriving at a depreciated value of the property.This has nothing to do with book depreciation or tax depreciation, but is instead intended to calculate the true current value of the improvements.The three types of property depreciation are:

1. Physical depreciation. What is the condition of the improvement?

2. Functional obsolescence. Loss of value because of physical factors other than deterioration, such as a poor floor plan, a one-car garage instead of a two-car garage, or high ceilings and multiple windows creating heating and cooling problems.

3. Economic obsolescence. Loss of value because of factors outside the property, such as noise  pollution from nearby highways or an airport.