In a real estate context, what does depreciation typically refer to?

In a real estate context, depreciation typically refers to the reduction in value due to physical or functional issues. This concept encompasses the wear and tear that properties experience over time, as well as other factors that can diminish their appeal or utility, such as outdated features or changes in the local market that make a property less desirable.

Physical depreciation might occur as the structure ages, leading to a decline in its condition, while functional depreciation might stem from design or layout flaws that hinder a property's usability. By understanding depreciation, real estate professionals can better assess the value of properties and make informed decisions regarding purchases, sales, and investments.

The other options describe different aspects that are not related to the definition of depreciation in real estate. For example, an increase in property value over time aligns more with appreciation than depreciation, while property upkeep costs and property taxes deal with expenses rather than the change in value of a property itself.