Market evidence isolates a value loss because an undamaged one-car garage provides insufficient utility relative to competing properties. What is the cause?
Correct Answer
B) Functional inadequacy.
The stipulated market discount for insufficient garage utility is functional inadequacy, not superadequacy. The garage’s existence does not establish adequate utility, and no structural damage is stated. Measure the supported effect without treating every one-car garage as obsolete.
Why This Is the Correct Answer
Option B is correct because the loss comes from the garage providing too little utility relative to competing properties, which is a functional deficiency, or inadequacy. Functional obsolescence is a loss in utility and value due to reduced desirability of the property, and inadequacy is one of its recognized forms.
Why the Other Options Are Wrong
Option A: Physical deterioration.
Option A, physical deterioration, is wrong because the garage is described as undamaged. Physical deterioration comes from wear, damage or deferred maintenance, none of which is stated.
Option C: External obsolescence.
Option C, external obsolescence, is wrong because the cause is the garage itself, a feature of the property, not an off-site influence such as nearby nuisances or market conditions.
Option D: Functional superadequacy.
Option D, functional superadequacy, is wrong because superadequacy means a feature exceeds what the market will pay for. Here the garage provides too little utility, which is the opposite condition, inadequacy.
Too little, too much, outside
Too little utility is inadequacy, too much is superadequacy, both functional. A cause outside the property line is external.
How to use: Use this sorting step whenever a question asks you to name the cause of a value loss.
Exam Tip
Look for words describing condition (damaged, worn) versus utility (insufficient, excessive) versus location (off-site). Each points to a different depreciation category.
Common Mistakes to Avoid
- -Calling any garage-related loss physical deterioration even when the garage is undamaged
- -Confusing inadequacy with superadequacy
- -Assuming a one-car garage causes a loss without market evidence
Concept Deep Dive
Analysis
This question tests classification of depreciation by cause. The garage is undamaged, so the loss is not physical, and the problem is inside the property, so it is not external. Insufficient utility compared with competing properties is a deficiency, which is functional inadequacy.
Background Knowledge
Depreciation is grouped into physical deterioration, functional obsolescence and external obsolescence. Functional obsolescence includes inadequacies, superadequacies and poor functional plans, and it can occur even in relatively new structures. A feature's existence does not by itself prove adequate utility; market evidence shows whether buyers discount it.
Real-World Application
In a neighborhood where most competing homes have two-car garages, an appraiser's paired sales show homes with sound one-car garages sell for less. The appraiser classifies the supported discount as functional inadequacy rather than physical wear.
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?
What best supports a claimed loss from a bathroom-layout deficiency?
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?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Income Approach
8.2% of exam
Previous Question
The monthly gross rent loss at the subject property is $250, and the monthly multiplier applicable to this loss is 110. What is the indicated loss in value of the whole property, before any allocation between site and improvements?
Next Question
Improvement cost new is $352,000. Separately supported improvement depreciation deductions of $44,000, $12,000, $9,000 are expressly nonoverlapping and not already excluded from cost new. Add supported site value of $120,000, already reflecting any site losses. What total indicated value results?