A property has a 1,200 sq ft heated indoor pool room in a market where no comparable has one and pool rooms show no measurable premium. The excess cost is:
Correct Answer
B) Treated as functional obsolescence from superadequacy
Why this is correct: Superadequacy is a form of functional obsolescence where an improvement is overly elaborate or costly for its market. The heated pool room costs more to build than the value it adds (which is zero, as the market shows no premium). This excess cost is a loss in value the moment it is built. Why the other choices are wrong: "Recovered fully through the improvement's contributory value" is wrong because the market evidence shows no contributory value. "Treated as functional obsolescence from superadequacy" is correct. "Added to the site value as a special-use enhancement" is wrong; site value is for land, not over-improvements. "Excluded from cost new and therefore never deducted" is wrong; under reproduction cost, it would be included and then deducted as obsolescence. Exam tip: Superadequacy = cost > value. Look for features the market does not pay for.
Why This Is the Correct Answer
Option B is correct because a costly improvement the market does not pay for is superadequacy, a form of functional obsolescence. The loss is real and immediate: the excess cost is sunk at the moment of construction, since no buyer in this market will reimburse it. Recognizing it keeps the cost approach reconciled with the sales comparison approach, which would show no premium for the feature. Care is needed to deduct the excess cost only once, net of physical depreciation already taken on the same component.
Why the Other Options Are Wrong
Option A: Recovered fully through the improvement's contributory value
This assumes contributory value equal to cost, which the stem expressly contradicts. Cost and value coincide only when an improvement represents the highest and best use and the market pays for it; here the market pays nothing. Assuming full recovery would carry the entire construction cost of the pool room into the value indication and inflate the conclusion.
Option C: Added to the site value as a special-use enhancement
Site value is estimated as though the land were vacant and available for its highest and best use, so no building component can be shifted onto it. Moving an unrecoverable improvement cost to the land line would corrupt the land value estimate and hide the obsolescence rather than measure it. Site value comes from land sales, extraction, or allocation, never from reassigning improvement costs.
Option D: Excluded from cost new and therefore never deducted
The cost approach starts from the cost of the improvements as they actually exist, so a built pool room is part of cost new and cannot be omitted from that figure. Leaving it out of cost new and taking no deduction would produce the same understated depreciation as pretending the cost was recovered. The correct treatment is to include the cost and then deduct the portion the market will not pay for.
Too much house, not enough market
A superadequacy is anything that makes you say 'nobody around here pays for that.' The tell is high cost paired with zero measurable premium. Cost went out the door; value never came in.
How to use: When a stem pairs an unusual, expensive feature with market evidence of no premium, choose superadequacy. If instead the stem describes something missing, you are in deficiency territory and the cure-cost formula applies.
Exam Tip
Read the market evidence clause first. Phrases like 'no measurable premium' or 'no comparable has one' are the examiner telling you the contributory value is zero.
Common Mistakes to Avoid
- -Treating cost as contributory value when the market shows no premium
- -Deducting the full cost new when the item retains some contributory value
- -Double-counting by taking both physical depreciation and the full excess cost on the same component
- -Confusing superadequacy with external obsolescence, which originates outside the property boundaries
Concept Deep Dive
Analysis
This tests superadequacy, the branch of functional obsolescence that arises when an improvement is more elaborate or expensive than the market for that property type will pay for. The cost approach begins with cost new and then deducts every form of depreciation, so an item that costs real money to build but adds nothing to value must be deducted somewhere or the approach will overstate value. Superadequacy is that deduction. The market evidence in the stem is decisive: no comparable has a pool room and pool rooms show no measurable premium, so the contributory value of this 1,200 square foot feature is effectively zero while its cost was substantial. Because removing the feature would cost money and recover nothing, this is ordinarily incurable superadequacy, measured by the excess cost of the item less any physical deterioration already charged against it, so that the same dollars are not deducted twice.
Background Knowledge
You should know the three forms of depreciation in the cost approach: physical deterioration, functional obsolescence, and external obsolescence, and that functional obsolescence divides into deficiencies and superadequacies, each curable or incurable. You also need the principle that cost equals value only at highest and best use, and the discipline of not double-counting a deduction already taken as physical depreciation.
Real-World Application
You appraise a tract home whose owner added an indoor lap pool enclosure for $180,000. Paired sales in the subdivision show no measurable premium, so you include the structure in cost new and take an offsetting superadequacy deduction, and you explain in the report why the cost approach and sales comparison approach now agree.
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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