What does "accrued depreciation" reflect in the cost approach formula?

Accrued depreciation is a key concept in the cost approach of property valuation, specifically reflecting the loss in value that occurs over time due to factors such as wear and tear, physical deterioration, and functional or external obsolescence. This concept is essential for appraisers to consider when determining the current value of a property compared to its original or replacement cost.

When valuing a property using the cost approach, an appraiser begins by estimating the cost to replace or reproduce the property at its current market value. From this value, accrued depreciation is subtracted to arrive at the final valuation. The idea is that even if a property is structurally sound, it may still have diminished value due to age and the general decline that tends to happen over time within the property's condition and market desirability.

In contrast, other options provide different concepts that do not pertain directly to what accrued depreciation signifies. Total expenses incurred, property upgrades, and the difference between asking and selling prices do not encapsulate the specific loss in value related to the aging and condition of a property, making the second choice the only one that accurately embodies the meaning of accrued depreciation within the cost approach formula.