A house needs $4,000 of exterior painting, which would add at least that much to its value. How is this classified?
Correct Answer
A) Curable physical deterioration
Why this is correct: Curable physical deterioration exists when the cost to cure the item is less than or equal to the value it adds back. Here, the $4,000 painting cost adds at least $4,000 in value, so it is economically feasible to cure. It is physical because it's wear and tear on the structure. Why the other choices are wrong: 'Incurable short-lived deterioration' would apply if the cost to cure exceeded the value added. 'Deferred functional obsolescence' relates to design flaws, not physical wear. 'External obsolescence' is caused by factors outside the property boundaries, like neighborhood decline. Exam tip: The test for curability is economic: Cost to Cure <= Value Added. If yes, it's curable and measured at cost.
Why This Is the Correct Answer
Option A is right because worn exterior paint is wear from use and weather, which is physical, and the stem states the four thousand dollars of work would add at least that much in value, which makes it curable. The measurement is the cost to cure - four thousand dollars enters the depreciation estimate. In practice this is also the item most visible to buyers, which is why deferred maintenance of this kind tends to cost a seller more in negotiation than it would have cost to fix. Classification first, then the economic test, then the measurement convention.
Why the Other Options Are Wrong
Option B: Incurable short-lived deterioration
Incurable short-lived deterioration describes a component with a shorter life than the structure that is partway through that life and not economically replaceable today, measured by an age-to-life ratio applied to its cost. Paint fails both parts: the cure is economically justified, so the item is curable, and there is nothing to prorate. The category exists for the roof covering with six years left, not for the peeling trim.
Option C: Deferred functional obsolescence
Functional obsolescence concerns defects in design, materials, or adequacy relative to market standards, and there is no design problem here - the house simply needs painting. Deferred is also not a modifier USPAP or standard methodology attaches to functional obsolescence; deferred maintenance is a physical concept. The option splices two vocabularies together.
Option D: External obsolescence, being weather-driven
External obsolescence arises from causes outside the property boundaries such as an adjacent nuisance, a rezoning, or a regional downturn. Weather acts on every property and is the ordinary mechanism of physical deterioration rather than an external influence on this parcel in particular. If weather made deterioration external, the physical category would be nearly empty.
Paint is the poster child
Curable physical deterioration has a poster child: exterior paint. Worn by weather, so physical. Cheap to fix and it pays for itself, so curable. Measured at what the painter charges. If you can picture the paint, you can place any physical item.
How to use: Sort a physical item by asking two questions in order. Does fixing it pay for itself? Yes means curable, measured at cost to cure. No means incurable, and then ask whether the component's life is shorter than the building's to choose short-lived or long-lived.
Exam Tip
Watch for stems that mention weather or the elements as a hint toward external obsolescence; weathering is the ordinary cause of physical deterioration and is not external.
Common Mistakes to Avoid
- -Treating deferred maintenance as incurable because it has been neglected a long time
- -Prorating a curable item by age and life instead of using cost to cure
- -Calling weather-driven wear external obsolescence
- -Mixing the vocabulary of physical and functional categories
Concept Deep Dive
Analysis
This question pairs the curability test with the physical category. Physical deterioration is loss from wear, tear, decay, and the elements, and within it the breakdown method separates curable items from incurable ones, with the incurable side further divided into short-lived and long-lived components. Curable physical deterioration is the deferred maintenance a buyer would expect a seller to have handled - worn paint, a failed water heater, torn carpet - where spending the money returns at least as much in value. Incurable short-lived items are components with shorter lives than the structure, such as roof covering or mechanical systems, that are partway through their lives but not yet economically worth replacing; they are measured by the ratio of age to life applied to their cost. Incurable long-lived items are the structural components whose life matches the building's. Exterior paint that will return its cost is the classic curable item, and it is measured at the cost to cure.
Background Knowledge
You need the structure of the breakdown method within physical deterioration - curable, incurable short-lived, and incurable long-lived - along with the measurement convention for each: cost to cure for curable items and an age-to-life ratio applied to component cost for incurable short-lived items. You should also know the economic curability test and the meaning of deferred maintenance as an appraisal term.
Real-World Application
An appraiser notes chalking and peeling on the south and west elevations, obtains a painter's bid of four thousand dollars, and confirms from local sales that freshly painted homes command at least that premium. The four thousand goes into the cost approach as curable physical deterioration and is also flagged in the condition rating.
More Cost Approach Questions
In a cost approach for a proposed building, the appropriate cost basis is generally:
A warehouse cost $210,000 to build when the cost index stood at 105. The index is now 210. Its indicated current cost is:
The age-life method expresses depreciation as:
Market extraction of depreciation is limited by the fact that it:
Functional obsolescence caused by a deficiency is measured as curable when:
Curable physical deterioration is measured at cost to cure because:
A 2,050 sq ft dwelling is priced at $178 per square foot with a $34,000 detached garage and $21,500 of site improvements. Cost new is:
A house has three bedrooms sharing one bathroom, and adding a second bath is economically justified. This is:
Direct costs in a construction budget include:
An appraiser writes that a 40-year-old house has an effective age of 10 but describes original wiring, original kitchen and a 25-year-old roof. The report's problem is:
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