Auctioneer Practice Exam

What are the three classes of depreciation?

1. Physical, aesthetic, and economic

2. Physical, functional, and economic

3. Functional, aesthetic, and market

4. Physical, economic, and financial

The correct answer is: Physical, functional, and economic

The correct choice highlights the three recognized classes of depreciation: physical, functional, and economic. Physical depreciation refers to the wear and tear on a property due to use, age, or environmental factors. This type of depreciation is observable and measurable, as it considers the tangible aspects of an asset that diminish over time. Functional depreciation relates to the reduction in value due to a loss of utility or efficiency. For example, if a property no longer meets the necessary standards or requirements for its intended use, its functional depreciation can result from design flaws, outdated features, or inadequate capacities. Economic depreciation is linked to external factors that can affect an asset's value, such as changes in market demand or local economic conditions. This type can occur independently of the physical condition or functionality of the asset and reflects broader economic trends. The other options incorporate terms that do not accurately categorize depreciation. For instance, aesthetic and market do not align with the standard classifications used in economic analysis. Understanding these distinctions is crucial for appraisers and auctioneers when evaluating property values and preparing them for sale.