Depreciation Order

If property suffers from more that one type of depreciation they should be estimated in the following order:

1.	Physical deterioration

2.	Functional obsolescence

3.	External obsolescence

Example:

A house cost $100,000 to build. It suffers from 30% physical deterioration, 10% functional obsolescence, and 20% external obsolescence. What is the value of the house by the cost approach to value (ignoring the land).

Cost of house new	$100,000
Less: Physical deterioration at 30%	$30,000
Sub-total	$70,000
Less: Functional obsolescence at 10%	$7,000
Sub-total	$63,000
Less: External obsolescence at 20%	$12,600
Indicated value by the cost approach	$51,400