An impairment of condition.
Deterioration is a cause of depreciation as
it reflects the loss in value caused by wear
and tear, disintegration, use in service,
and action of the elements. Deterioration is
synonymous with physical depreciation, which
may be further classified as curable or
incurable depreciation.
Example of Deterioration
A developer
recently purchased an older building and is
considering the cost of remodelling to
attract potential tenants. Given that
components of a building are classified as
curable and incurable, he starts to make a
list under each category. The list would
vary substantially, based on a variety of
factors relating to the building, cost of
improvements, and overall market conditions.
Curable
items are those which the typical buyer
would repair or replace immediately on
taking possession, where the cost of repair
or replacement is offset by the increased
utility, and where it is economically sound
to repair or replace. The developer
immediately puts the carpeting, decoration
in common hallways, bathroom facilities, and
the main lobby area on his list.
Incurable
items are components which are old or
outdated, but which most buyers would not
repair or replace because the cost to cure
would outweigh benefits. Under this list,
the developer itemizes the exterior windows,
existing elevator facilities, and other
major structural components of the building.
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