What does physical deterioration refer to in real estate?

Physical deterioration in real estate specifically refers to the decline in the physical condition of a property due to factors such as aging, decay, and ordinary use. This type of deterioration is a natural process that occurs as buildings and structures age, as well as the result of wear and tear from daily operations and weather exposure. It can manifest through issues like cracked foundations, worn roofing, or outdated plumbing and electrical systems.

Understanding this concept is vital for real estate professionals when assessing property values, determining maintenance needs, and planning for renovations or restorations. Physical deterioration is distinct from other forms of depreciation like economic obsolescence or functional obsolescence, which involve external factors or design inefficiencies rather than the physical state of the property itself.