Arizona Real Estate License Practice Exam

In the context of the cost approach in real estate valuation, land does not depreciate like physical structures or improvements. The cost approach assesses the value of a property by calculating the cost to replace or reproduce the improvements (like buildings and fixtures) and then subtracting any depreciation associated with those improvements. However, land is considered to have an indefinite lifespan and is not subject to depreciation, regardless of external factors such as economic conditions or development changes.

Using this approach, elements such as roofs, air conditioners, and fixtures can all experience physical, functional, or economic depreciation over time due to wear and tear, outdated technology, or market conditions. In contrast, land remains stable and typically appreciates in value rather than depreciates, which distinguishes it from other property improvements.