A verified functional layout deficiency costs $120,000 to correct and adds $70,000 of value, with no other costs or benefits. Which classification follows?
Correct Answer
C) Economically incurable functional obsolescence.
A layout deficiency concerns functional utility, but economic incurability requires cost-benefit evidence. Here the supported feasible cure costs more than the value benefit, establishing economic incurability under the stated alternatives. Major renovation is not automatically unjustified without that comparison.
Why This Is the Correct Answer
Option C is correct because functional obsolescence is curable only when the cost to cure is equal to or less than the value added. A $120,000 cure that adds $70,000 fails that test, so the layout deficiency is economically incurable functional obsolescence.
Why the Other Options Are Wrong
Option A: External obsolescence, because other properties compete.
Option A calls it external obsolescence because other properties compete. A layout deficiency comes from the property's own design, and the presence of competing properties does not make an internal design problem external.
Option B: Curable, because renovation is physically possible.
Option B calls it curable because renovation is physically possible. Curability depends on economics, and a $120,000 cost to gain $70,000 of value is not economically justified.
Option D: Physical deterioration despite the stipulated design cause.
Option D calls it physical deterioration despite the stated design cause. Physical deterioration is wear and decay, while a layout problem is a design issue and therefore functional.
Cure Pays or Stays
If the fix earns back at least what it costs, it is curable. If it costs more than it adds, the problem stays as incurable.
How to use: Use this rule by comparing the two dollar amounts in any curability question.
Exam Tip
Classify the cause first (design means functional), then apply the cost-versus-value test for curability.
Common Mistakes to Avoid
- -Treating physical possibility of renovation as proof of curability
- -Classifying a design problem as physical deterioration
- -Calling a property-specific design issue external obsolescence
Concept Deep Dive
Analysis
This question tests the cost-benefit test for curability of a functional deficiency. A layout problem is a design issue, so it is functional. Since the $120,000 cure exceeds the $70,000 value added, it is economically incurable.
Background Knowledge
Functional obsolescence is classified as curable or incurable by comparing the cost to cure with the value gained. A major renovation is not automatically unjustified; the decision rests on that cost-benefit comparison.
Real-World Application
An appraiser finds a home where the only full bathroom is reached through a bedroom. A contractor estimates $120,000 to reconfigure the floor plan, but market data shows only a $70,000 gain, so she treats the problem as incurable.
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