What does "accrued depreciation" represent in property valuation?

Accrued depreciation is a concept used in property valuation that refers to the loss of value of a property over time due to various factors. The correct understanding of accrued depreciation is that it represents the difference between the replacement cost of a property—in other words, what it would cost to replace that property with a similar one at today's prices—and the current appraised value of the property.

This means that if a property is appraised at a lower value than its replacement cost, the difference accounts for factors such as physical deterioration of the property, functional obsolescence (where the property may be less desirable due to outdated features), and economic obsolescence (which may arise from external market conditions). By assessing accrued depreciation in this way, appraisers can better understand the true value of a property in its current state, reflecting not just the amount it would cost to replace, but what it is actually worth in the market today.

Thus, the notion that accrued depreciation captures the gap between replacement cost and current appraised value is critical for accurate property valuation, making it an essential component in understanding how a property has lost value over time.