A supported internal bathroom-utility deficiency has a physically feasible correction whose full benefit justifies full cost. How is it classified?
Correct Answer
A) Curable functional deficiency.
The deficiency is functional under the stated utility facts, and correction is expressly economically justified. The value benefit need not strictly exceed cost if equality is adequately supported, but it must justify all relevant costs. Bathroom count alone does not prove a loss in every market.
Why This Is the Correct Answer
Option A is correct because a shortfall in bathroom utility is a functional problem located within the property, and the stem states that correcting it is physically feasible and economically justified. Functional obsolescence is classified as curable when the cost to cure is supported by the resulting increase in value. Both conditions are met here, so the item is a curable functional deficiency.
Why the Other Options Are Wrong
Option B: Incurable functional deficiency.
Option B, incurable functional deficiency, is wrong because a functional item is incurable only when the cost to correct it is not justified by the value it adds. Here the full benefit justifies the full cost, which makes the item curable.
Option C: External obsolescence.
Option C, external obsolescence, is wrong because external obsolescence comes from negative influences outside the property. A bathroom-utility deficiency is an internal design or layout problem, not an outside influence.
Option D: Curable physical deterioration.
Option D, curable physical deterioration, is wrong because physical deterioration is wear and tear or decay of building components. The stem describes a utility (design) shortfall, which is functional, not a worn-out component.
Where it lives, then pay-off
First ask where the problem lives: worn parts are physical, poor design is functional, outside causes are external. Then ask whether the fix pays for itself: if the value gained justifies the cost, it is curable.
How to use: Use this two-step check whenever a question asks you to classify an item of depreciation.
Exam Tip
Separate the type of loss from its curability; the stem usually gives one clue for each. Words like utility, layout or design point to functional, and an economically justified fix points to curable.
Common Mistakes to Avoid
- -Classifying a design or layout shortfall as physical deterioration because it involves a room in the house
- -Calling an item incurable just because the cure is expensive, without comparing cost to the value gained
- -Assuming a low bathroom count proves a loss in any market without checking market evidence
Concept Deep Dive
Analysis
This question tests two separate classification steps: identifying the type of depreciation and deciding whether it is curable. A deficiency in internal bathroom utility is a design or layout problem inside the property, so it is functional rather than physical or external. Because the correction is physically feasible and its value benefit justifies its full cost, it is curable.
Background Knowledge
Accrued depreciation is divided into physical deterioration, functional obsolescence and external obsolescence. Physical and functional items are further classified as curable or incurable depending on whether the cost to cure is justified by the added value, while external obsolescence arises outside the property and is generally beyond the owner's control.
Real-World Application
An appraiser inspects a four-bedroom house with only one bathroom in a market where buyers expect two. Market data show a second bath can be added within the existing footprint and that the value increase would cover the construction cost, so the appraiser treats the item as curable functional obsolescence and measures it by the cost to cure.
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?
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An item is economically curable only if the benefit of curing it exceeds its cost to cure. Item A has a cost to cure of $12,500 and a benefit of $28,000. Item B has a cost to cure of $42,000 and a benefit of $18,000. There are no other effects or overlapping allowances. What is the total cost to cure of the curable items?