A verified kitchen-design deficiency causes market value loss. A legally and physically feasible cure has total relevant cost $18,000 and supported value restored $25,000, with no omitted delay or other costs. How is the deficiency classified in this stated economic-curability comparison?
Correct Answer
A) Curable functional obsolescence
The stipulated design deficiency produces a supported value loss. Its feasible cure adds $25,000 of value at total relevant cost $18,000, so the supported benefit exceeds cost and the exercise identifies curable functional obsolescence. The home’s total price alone would not establish curability, and cure cost is not automatically the amount of depreciation.
Why This Is the Correct Answer
Option A is correct because the kitchen design deficiency is a functional problem, and its cure costs $18,000 while restoring $25,000 of value. Functional obsolescence is curable if the cost to cure is equal to or less than the value added by curing it. Since $18,000 is less than $25,000, the deficiency is curable functional obsolescence.
Why the Other Options Are Wrong
Option B: External obsolescence
Option B, external obsolescence, is wrong because the loss comes from the kitchen's design within the property, not from an outside influence.
Option C: Incurable functional obsolescence
Option C, incurable functional obsolescence, is wrong because the $18,000 cure cost is less than the $25,000 of value restored, which makes it curable.
Option D: Physical deterioration
Option D, physical deterioration, is wrong because the problem is a design deficiency, not wear and tear on building components.
Cure if it pays
If fixing it adds at least as much value as it costs, it is curable.
How to use: Use this cost-versus-benefit test whenever a question asks if obsolescence is curable.
Exam Tip
Compare cure cost to value added, not to the property's total price.
Common Mistakes to Avoid
- -Classifying a design flaw as physical deterioration
- -Treating cure cost as the amount of depreciation in every case
- -Calling an internal design problem external obsolescence
Concept Deep Dive
Analysis
This question tests the curability test for functional obsolescence. Compare the cost to cure with the value added by curing. When cost is equal to or less than the value added, the item is curable.
Background Knowledge
Depreciation has three types: physical deterioration, functional obsolescence and external obsolescence. Physical and functional items can be curable or incurable depending on whether curing is economically justified, while external obsolescence arises outside the property.
Real-World Application
A home has an awkward, outdated kitchen layout that buyers penalize. The appraiser finds that remodeling would cost less than the value it adds and classifies the item as curable functional obsolescence.
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