DEPRECIATION 101
Does Real Estate Value Go Down?
Since 2020, homeowners celebrated and debated "Appreciation" from different viewpoints: First, "Wow!" - Then, "What happened?"
Part of the price peak experienced in 2020 to 2022, when Millennials represented the dominant share of homebuyers, was their preference for renovated or new homes in move-in condition; see "Locked in a Home?" published by PREP last month. They wanted and paid for upgrades like fully equipped kitchens with recently installed and tech-savvy appliances, wifi-connected thermostats/HVAC and capacity for in-home tech tools/toys as well as external security, low-maintenance baths accompanied by washers/dryers that did their work with minimal supervision, supported by sufficient and safe wiring to run all of it. Diligent sellers completed this work before listing their homes with equipment that had a "useful life" typically between 9 and 15 years.
Shifting market dynamics tell us it's time to look at appreciation's flip side – Depreciation. This emphasizes different qualities of the real asset we call "Home", along with a 21st century understanding of how that asset depreciates. Owners of all ages understand that key components of real estate – from roofs and siding outside to interior drywall and electric/plumbing fixtures – wear out over 20+ years, so they need maintenance as well as eventual replacement. Although changing style preferences may push an owner to renovate before required, these costs can be estimated in a reliable range. Appraisers account for "useful life" differences and anticipated replacement cost in a "Condition" adjustment that should make sense to everybody. "Deferred maintenance" captures the cost of annualized depreciation, calculated by dividing replacement cost by the years of usable life.
Beyond the recognized expense of caring for home components, disagreements will surface, often related to rapidly growing "technological obsolescence". For example, Buyers who purchased a renovated home built when owners used fewer appliances or did not have tech-dependent tools both inside and outside, learn that the expense of upgrading electrical capacity and adding necessary outlets may rival the cost of a major roof repair. Plus, depreciation of the newer technology in a home is less certain but necessary:
- What constitutes adequate electrical service in a modern home? Older owners may have less daily need for internet-based upgrades in their home and may consider them "extras" that add little value. They may be accustomed to lower-cost fixes like portable/wall HVAC and keep extension cords available for occasions when they have more appliances than plugs. Younger owners who have integrated technology into their lives need it in their homes and use it to manage components in tandem for greater overall efficiency
- How do we account for added benefit as well as quicker replacement? Tech-savvy appliances cost more, so upgrades should add to value. On the other hand, repairs are more expensive and technological compatibility may shorten their useful lives
How does change like this impact real estate? "Locked in a Home" argues that unexpected technological upgrades in a home along with the cost of replacing depreciated appliances help keep Millennials in homes longer, leaving it up to Boomers, dominant as both home buyers and sellers, to define what's important in marketing a home. While Boomers rule, depreciation questions will target deferred maintenance. After that, the cost of technology as well as the cost and availability of electricity to operate its tools will gain attention.
For a comprehensive but dated list of useful years for appliances, check out Consumer Reports' "By the Numbers". A smaller 2026 list published by This Old House shows that the number of years has not changed materially but adds useful insights into what affects it.