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breakdown method

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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.



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The breakdown method also is not particularly practical.
The emphasis to date in accounting for accrued depreciation has been to estimate the difference between cost and value by referring to sales rather than to refine the breakdown method of measuring causes of accrued depreciation.
The breakdown method of estimating physical depreciation entails estimating "all items of depreciation individually"(1) then adding the individual estimates together and deducting the sum from the estimated reproduction or replacement cost.
 
 
 
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