A qualified HVAC assessment confirms oversizing causes short cycling, and market evidence isolates value loss from that design overadequacy rather than wear or outside factors. What cause of loss is identified?
Correct Answer
C) Functional obsolescence due to overadequacy
Given the qualified finding and isolated market value loss, the design overadequacy is functional obsolescence. Physical wear and outside economic forces are different causes. Cure feasibility, amount and any double counting require their own evidence; an oversized label alone is insufficient.
Why This Is the Correct Answer
Option C is correct because functional obsolescence is the loss of value caused by the design of the property itself. An oversized HVAC system is a design overadequacy, and the market evidence isolates the loss to that cause. Physical wear and outside economic factors have been ruled out by the facts given.
Why the Other Options Are Wrong
Option A: Normal wear and tear on the equipment
Option A is wrong because it attributes the loss to normal wear and tear on the equipment. The stem states the market evidence isolates the loss from design overadequacy rather than wear.
Option B: External obsolescence from utility rate changes
Option B is wrong because it labels the loss external obsolescence from utility rate changes. External obsolescence comes from factors outside the property, and the stem attributes the loss to the system's own design.
Option D: Physical deterioration due to poor maintenance
Option D is wrong because it calls the loss physical deterioration due to poor maintenance. Nothing in the facts points to poor maintenance, and the loss is tied to oversizing, a design issue.
Design flaw means functional
Wear is physical, outside forces are external, and a problem built into the design, too little or too much, is functional.
How to use: Use this to classify any depreciation item by asking where the loss comes from.
Exam Tip
Identify the cause of the loss first; the classification follows from the cause, not from the item affected.
Common Mistakes to Avoid
- -Treating any equipment problem as physical deterioration
- -Forgetting that overadequacy can be functional obsolescence
- -Classifying a design issue as external obsolescence
Concept Deep Dive
Analysis
This question tests classification of depreciation by cause. The stem establishes that a qualified assessment found oversizing causing short cycling, and market evidence ties the value loss to that design overadequacy rather than wear or outside forces. A loss caused by the design of the property itself is functional obsolescence.
Background Knowledge
Depreciation in the cost approach is divided into physical deterioration, functional obsolescence and external obsolescence. Functional obsolescence can come from deficiencies or from superadequacies, where a component exceeds what the market requires. Whether it is curable, and how much it costs, require separate analysis and evidence.
Real-World Application
An appraiser values a home where an HVAC contractor reports the system is far too large for the house and short cycles. Market data show buyers discount homes with this problem, so the appraiser treats the loss as functional obsolescence and analyzes whether it is curable.
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