A five-bedroom house has only one bathroom. Adding a second costs $28,000 now, would have cost $17,000 during construction, and the market pays $31,000 for the second bath. The functional obsolescence is:
Correct Answer
A) $11,000 — the excess of curing now over building it in
Why this is correct: Functional obsolescence from a deficiency is measured as the cost to cure the deficiency now, minus the cost that would have been incurred if the feature had been included during original construction. Here, $28,000 (current cost) - $17,000 (original cost) = $11,000. The market's contributory value of $31,000 confirms the cure is economically feasible. Why the other choices are wrong: "$28,000, the full current cost to add the bathroom" ignores the cost already embedded in the replacement cost. "$31,000, the market's contributory value for it" is the value added, not the obsolescence penalty. "$3,000, the profit remaining after the cure" ($31,000 - $28,000) is not the measure of obsolescence. Exam tip: For curable functional obsolescence, the penalty is the extra cost to add the feature now versus at construction.
Why This Is the Correct Answer
Option A applies the formula correctly: $28,000 to cure now less $17,000 to have built it in equals $11,000 of curable functional obsolescence. The item is properly treated as curable because the $31,000 the market pays exceeds the $28,000 cure cost, so a rational owner would fix it. Deducting $11,000 avoids double-counting the portion of the bathroom cost already embedded in replacement cost new. That leaves the depreciated cost figure consistent with what a buyer would actually pay.
Why the Other Options Are Wrong
Option B: $28,000, the full current cost to add the bathroom
Deducting the full $28,000 double-counts. Replacement cost new was estimated as if the house were built correctly today, which already includes roughly the $17,000 of bathroom cost, so subtracting the entire current cure cost penalizes the property twice for the same item. The excess-over-original figure is what isolates the true penalty.
Option C: $31,000, the market's contributory value for it
The $31,000 is what buyers pay for the second bath, which is the feasibility benchmark, not the obsolescence measure. Contributory value tells you the cure is worth doing because it exceeds the $28,000 cost; it does not quantify how much the cost approach must be reduced. Using it here would confuse value added with cost penalty.
Option D: $3,000, the profit remaining after the cure
The $3,000 spread between the $31,000 contributory value and the $28,000 cure cost is the owner's economic gain from curing, not an obsolescence measure. Profit on a cure never appears as a deduction in the cost approach. If anything, a positive spread is the reason the item is classified as curable in the first place.
Pay the penalty, not the plumbing
The cost approach already paid for the bathroom once, in replacement cost new. Your deduction is only the surcharge for doing it late: Now minus New.
How to use: When a stem gives you three dollar figures for a missing feature, label them cure-now, would-have-been, and market-pays. Subtract the second from the first for the obsolescence; use the third only to decide curable versus incurable.
Exam Tip
Circle the phrase 'would have cost during construction' the moment you see it. It is always the subtrahend, and questions include it precisely to see whether you subtract.
Common Mistakes to Avoid
- -Deducting the full current cost to cure and double-counting the item
- -Using the market's contributory value as the deduction
- -Calling the item incurable when the value added exceeds the cure cost
- -Forgetting that a deficiency requiring substantial alteration has its own excess-cost logic
Concept Deep Dive
Analysis
This tests the measurement of curable functional obsolescence caused by a deficiency, which is one of the few places in the cost approach where a specific formula is required. The logic starts from the fact that the cost approach already credits the improvement with its replacement cost new, and that figure includes what a second bathroom would have cost had it been built in. If the item is missing, the penalty is not the whole cost of adding it today; it is only the excess you must pay to add it now over what it would have cost during construction, because the base cost figure has already absorbed the lower amount. So the measure is cost to cure now minus cost if installed new. The market's contributory value plays a different role: it is the feasibility test that tells you whether curing makes economic sense at all.
Background Knowledge
You need the curable-deficiency formula: cost to cure now minus the cost the item would have added at construction. You also need the feasibility rule that an item is curable only when the value added by curing at least equals the cost to cure, and the understanding that replacement cost new already assumes a properly built improvement.
Real-World Application
On a five-bedroom, one-bath 1955 tract home you find the builder's era cost data and a local contractor bid for adding a bath in the existing floor plan. You deduct the difference as curable functional obsolescence and note in the report that paired sales show buyers paying more than the cure cost, which supports the curable classification.
More Cost Approach Questions
In a cost approach for a proposed building, the appropriate cost basis is generally:
A warehouse cost $210,000 to build when the cost index stood at 105. The index is now 210. Its indicated current cost is:
The age-life method expresses depreciation as:
Market extraction of depreciation is limited by the fact that it:
Functional obsolescence caused by a deficiency is measured as curable when:
Curable physical deterioration is measured at cost to cure because:
A 2,050 sq ft dwelling is priced at $178 per square foot with a $34,000 detached garage and $21,500 of site improvements. Cost new is:
A house has three bedrooms sharing one bathroom, and adding a second bath is economically justified. This is:
Direct costs in a construction budget include:
An appraiser writes that a 40-year-old house has an effective age of 10 but describes original wiring, original kitchen and a 25-year-old roof. The report's problem is:
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