Physical depreciation is a loss in property value resulting from the deterioration of a structure or its components over time, caused by age, wear, deferred maintenance or damage. It is the most common and observable form of depreciation addressed in the cost approach to value.
Appraisers classify physical depreciation as either curable — when the cost to repair or replace a component is justified by the resulting value gain — or incurable, when correction is not economically practical. Curable items typically include deferred maintenance such as worn flooring or failing systems, while incurable depreciation reflects the natural aging of structural components beyond practical remedy.
Accurately estimating physical depreciation requires more than applying an age-life formula. Market reaction to condition differences, effective age versus actual age and the quality of any updates or renovations all influence the final depreciation estimate and should be supported with market evidence wherever possible.