A retrofit to cure a deficiency would cost $28,000 today and add $31,000 to value. The current reproduction cost of the improvements already includes $17,000, at current prices, for the equivalent item installed during new construction. What deduction for the deficiency keeps that amount from being counted twice?
Correct Answer
B) $11,000
28000−17000 = 11000; 31000>28000 supports cure. Common errors: deducting the full retrofit cost without removing the allowance already in the base gives $28,000; using the value added instead of the retrofit cost gives $14,000; using the net benefit of the cure (value added − cost) as the deduction gives $3,000.
Why This Is the Correct Answer
Option B is correct because the deduction is retrofit cost minus the current new-construction allowance already in the base: $28,000 − $17,000 = $11,000. The cure is economically supported since $31,000 of value added exceeds the $28,000 cost.
Why the Other Options Are Wrong
Option A: $3,000
Option A, $3,000, is the net benefit of the cure ($31,000 − $28,000), not the deduction. The deduction is $28,000 − $17,000 = $11,000.
Option C: $14,000
Option C, $14,000, uses the value added instead of the retrofit cost ($31,000 − $17,000). The deduction is based on cost: $28,000 − $17,000 = $11,000.
Option D: $28,000
Option D, $28,000, deducts the full retrofit cost without removing the $17,000 already in the cost base. That double counts the allowance; the deduction is $28,000 − $17,000 = $11,000.
Don't pay for it twice
If cost new already includes part of the item, deduct only the extra retrofit cost beyond that part.
How to use: Use this when a question says an allowance for the item is already counted in cost new.
Exam Tip
Separate two questions: is the cure justified (value added versus cost), and what is the deduction (as the problem prescribes). Distractors mix the two.
Common Mistakes to Avoid
- -Deducting the full retrofit cost when part is already in cost new
- -Using the value added in place of the cost to cure
- -Treating the net benefit of the cure as the deduction
Concept Deep Dive
Analysis
This question tests measuring a curable deficiency when part of its cost is already in the reproduction cost base. The cure is justified because the $31,000 value added exceeds the $28,000 cost. Because a $17,000 new-construction allowance is already counted in the base, the deduction is the retrofit cost minus that allowance.
Background Knowledge
An item is curable when the cost to correct it is less than the economic benefit. When the reproduction cost base already includes an allowance for an item, deducting the full retrofit cost would double count that allowance. The net deduction is the excess of retrofit cost over the amount already in cost new.
Real-World Application
A reproduction cost estimate already includes an allowance for an item that a retrofit would install at greater cost. The appraiser deducts only the difference between the retrofit cost and that allowance so cost new and depreciation do not overlap.
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