A 2,400 square foot office building has 8-foot ceiling heights, while market standards call for 9-foot ceilings. The cost to correct this deficiency is estimated at $75,000, but the loss in value is only $45,000. This is an example of:
Correct Answer
A) Incurable functional obsolescence
The internal clearance deficiency is functional, and the stated $75,000 cure cost exceeds its full $45,000 benefit, so correction is economically unjustified here. Area and building category do not themselves determine incurability. A physical alteration may be feasible while economically incurable.
Why This Is the Correct Answer
Option A is correct because functional obsolescence is curable only when the cost to cure is equal to or less than the value added by curing it. Here the cure costs $75,000 but the loss in value is only $45,000, so the cure is not economically feasible. A deficiency that is not economically feasible to cure is incurable functional obsolescence, even if the physical work could be done.
Why the Other Options Are Wrong
Option B: Curable functional obsolescence
Option B, curable functional obsolescence, would require the cost to cure to be equal to or less than the value gained. A $75,000 cure for a $45,000 benefit fails that test, so the item is not curable.
Option C: External obsolescence
Option C, external obsolescence, applies to loss from causes outside the property, such as market or neighborhood influences. Low ceiling height is a design feature of the building itself, so it is functional, not external.
Option D: Physical deterioration
Option D, physical deterioration, refers to wear and tear or decay of the building. The ceilings are not worn out; they are below market standard by design, which is a functional problem.
Cure costs more, incurable
Compare the cure cost with the value gained: if the cure costs more than it adds, the item is incurable. If it costs the same or less, it is curable.
How to use: Use this comparison whenever a question gives both a cost to cure and a loss in value for a design problem.
Exam Tip
First decide the category (physical, functional or external) by the source of the loss, then apply the cost versus benefit test to decide curable or incurable. Building size or type does not decide curability.
Common Mistakes to Avoid
- -Calling a deficiency curable because the work is physically possible
- -Classifying a building design issue as external obsolescence
- -Treating a design shortfall as physical wear
Concept Deep Dive
Analysis
This question tests the difference between curable and incurable functional obsolescence. Low ceilings are a design deficiency inside the property, so the loss is functional. Because the $75,000 cost to cure exceeds the $45,000 value benefit, correcting it is not economically justified, which makes it incurable.
Background Knowledge
Functional obsolescence is loss of value caused by the design of the property itself, including deficiencies and superadequacies. It is classified as curable when the cost to correct it is equal to or less than the value added, and incurable when the cost exceeds the benefit. Incurability is an economic test, not a question of whether the work is physically possible.
Real-World Application
An appraiser reviewing an older office building notes 8-foot ceilings where tenants in the market expect 9-foot ceilings. A contractor estimates the cost of raising them, and the appraiser compares that cost with the rent and value difference shown by comparable buildings to decide whether the deficiency is curable.
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