A house has no central air in a market where nearly all sales have it. Installing costs $9,000; new construction would include it for $6,000; paired sales show buyers pay $8,000 more with A/C. This deficiency is:
Correct Answer
B) Curable, measured at the $3,000 excess of installing now over building in
Why this is correct: Curability is tested by whether the cost to cure ($9,000) is less than or equal to the value added ($8,000). Here, cost exceeds value by $1,000, making it a close case. The functional penalty is the excess of retrofit cost over new-in cost ($9,000 - $6,000 = $3,000). Why the other choices are wrong: "Curable — the $3,000 excess cost is less than nothing, so cure is automatic" misinterprets; the $3,000 is a penalty, not a reason for automatic cure. "Incurable, since installation exceeds the new-construction figure" is too absolute; the test is cost vs. value added, not just vs. new cost. "Nonexistent, because cost exceeds one contribution estimate" is false; a deficiency exists if market pays less. Exam tip: For curable functional obsolescence, test: Cost to Cure ≤ Value Added.
Why This Is the Correct Answer
Why this is correct: Curability is tested by whether the cost to cure ($9,000) is less than or equal to the value added ($8,000). Here, cost exceeds value by $1,000, making it a close case. The functional penalty is the excess of retrofit cost over new-in cost ($9,000 - $6,000 = $3,000). Why the other choices are wrong: "Curable — the $3,000 excess cost is less than nothing, so cure is automatic" misinterprets; the $3,000 is a penalty, not a reason for automatic cure. "Incurable, since installation exceeds the new-construction figure" is too absolute; the test is cost vs. value added, not just vs. new cost. "Nonexistent, because cost exceeds one contribution estimate" is false; a deficiency exists if market pays less. Exam tip: For curable functional obsolescence, test: Cost to Cure ≤ Value Added.
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A certified general appraiser is valuing a 40-year-old office building affected by chronic noise and air pollution from a nearby airport. The appraiser estimates total external obsolescence at $620,000 using the sales comparison approach with paired sales. The site value, as confirmed by vacant land sales, is $380,000, and the reproduction cost new of the improvements is $1,850,000. Physical and functional depreciation total $310,000. What is the indicated value of the improvements after accounting for all forms of depreciation, including external obsolescence?