What best supports a claimed loss from a bathroom-layout deficiency?
Correct Answer
B) Relevant market evidence isolating a utility-related value penalty.
A design difference becomes functional obsolescence when relevant market evidence supports a loss of utility and value. Age or an owner’s inconvenience alone does not quantify it. Buyer feedback and marketing may inform investigation, but a supported causal value analysis is needed.
Why This Is the Correct Answer
Option B is correct because functional obsolescence must be supported by relevant market evidence showing a loss of utility and value. Techniques such as paired sales analysis isolate a single characteristic's effect on value.
Why the Other Options Are Wrong
Option A: The age of the floor plan alone as proof of value loss.
Option A, the age of the floor plan alone as proof of value loss, is wrong because age does not show that buyers pay less for the layout. A loss must be measured from market evidence.
Option C: One owner’s inconvenience as an automatic dollar measure.
Option C, one owner's inconvenience as a dollar measure, is wrong because a single owner's preference is not market evidence. Value loss reflects the reaction of typical buyers.
Option D: A deviation from a new-home plan, whether or not buyers care.
Option D, a deviation from a new-home plan whether or not buyers care, is wrong because a difference that buyers do not penalize does not produce a value loss.
Market proves the penalty
A design flaw counts only if buyers pay less for it. Paired sales show whether they do.
How to use: Use this to choose market-based evidence over opinion, age or design comparisons.
Exam Tip
Prefer answers grounded in market evidence over answers based on age, one person's opinion or comparison with new construction.
Common Mistakes to Avoid
- -Treating an older floor plan as proof of a loss
- -Using an owner's complaints as a dollar measure
- -Assuming any difference from new construction reduces value
Concept Deep Dive
Analysis
This question tests what evidence supports functional obsolescence. A design difference is a loss only when the market penalizes it. Relevant market data, such as paired sales, isolates the effect of that feature on value.
Background Knowledge
Functional obsolescence is a loss in utility and value from a design or feature that the market finds less desirable. The amount should be supported by relevant market data. Paired sales analysis compares nearly identical properties to isolate a single characteristic's effect on value.
Real-World Application
An appraiser suspects buyers dislike a home's only bathroom being off the kitchen. Comparing sales of similar homes with and without that layout lets the appraiser measure whether a penalty exists and how large it is.
More Cost Approach Questions
Why can equivalent-utility replacement cost be useful for an obsolete improvement?
An appraiser estimates the current replacement cost new of the improvements at $890,000, accrued depreciation from all causes at $170,000, and land value at $325,000. All necessary cost components and depreciation are included in those amounts. What is the indicated property value?
Improvement cost new is $595,000. Separately supported improvement depreciation deductions of $48,000, $27,000 are expressly nonoverlapping and not already excluded from cost new. Add supported site value of $155,000, already reflecting any site losses. What total indicated value results?
Improvement cost new is $1,850,000. Separately supported improvement depreciation deductions of $310,000, $620,000 are expressly nonoverlapping and not already excluded from cost new. No site is included. What depreciated improvement amount results?
Which scenario most strongly supports giving the cost approach substantial weight?
A cost total $650,000 explicitly includes $40,000 of non-realty FF&E outside the appraised real-property interest. Exclude it. Supported realty-only total depreciation is $55,000. Add site $200,000, with no overlap. What real-property cost indication results?
A 2,200-sf dwelling costs $200 per square foot, and a separate 400-sf garage costs $75 per square foot. These costs are complete and do not overlap. Both have an effective age of 15 years and a total life of 50 years, with straight-line depreciation and no salvage value. No site value or other loss is involved. What is the combined depreciated cost of the dwelling and garage?
A new feature in the improvements has a current cost of $45,000 and a market contribution of $18,000. The entire difference is due to superadequacy, with no physical or external loss and no overlap. What is the loss from the superadequacy?
An external influence causes an annual net income loss of $9,600. The capitalization rate for the loss is 8%, and no other economic factors change. What is the indicated loss in value of the whole property, before allocation between site and improvements?
Building cost new $360,000 has 20% total building loss. Separate site improvements are already as-is $42,000 and not in the building or vacant-site figure. Vacant-site value is $150,000. What total indication results?
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Previous Question
Dwelling cost new is $296,000. A separate 528 sf garage costs $52/sf; additional site improvements cost $14,500. No components overlap and land is excluded. What total improvement cost new results?
Next Question
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?