Which statement best describes the impact of depreciation?

The statement that depreciation denotes a decrease in the value of improvements over time is accurate and captures the essence of the concept in real estate. Depreciation occurs due to various factors, such as physical wear and tear, functional obsolescence, or external economic changes. Over time, properties may lose value due to these factors, impacting their overall worth.

When assessing the impact of depreciation, it is essential to understand that it represents a loss in value rather than indicating an increase. This decline affects investment decisions and the valuation of properties, which is critical for real estate professionals to grasp in order to effectively navigate the market and provide accurate appraisals. In such a context, depreciation serves as an important metric for investors and buyers, as they gauge the longevity and profitability of their real estate investments.