A worn furnace would cost $6,000 to replace but replacing it would add only $3,500 to the property's value. How is the deterioration treated?
Correct Answer
B) Incurable, since the cure costs more than it returns
Why this is correct: The economic test for curability fails because the cost to cure ($6,000) exceeds the value it would add ($3,500). Therefore, the deterioration is incurable. A rational buyer would not spend $6,000 to gain only $3,500 in value. The loss in value is instead captured through the property's overall depreciation (e.g., via an age-life calculation). Why the other choices are wrong: It is not curable at $6,000 because that would be an uneconomic improvement. Averaging the cost and value is not a standard appraisal technique. It is not ignored; incurable depreciation still reduces the property's market value. Exam tip: Remember the rule: Curable if Cost <= Value Added. Incurable if Cost > Value Added.
Why This Is the Correct Answer
Option B is correct because the cure costs $6,000 and returns only $3,500, failing the economic test. Incurable is therefore the right classification, and the resulting depreciation is captured through the component's age-life treatment rather than as deferred maintenance at cost. Incurable does not mean ignored; the worn furnace still reduces value, just by an amount the market determines rather than by the repair invoice. Classifying it correctly keeps the cost approach from overstating the deduction.
Why the Other Options Are Wrong
Option A: Curable, at the $6,000 cost to cure
Deducting the full $6,000 cost to cure would apply the curable measurement to an item that failed the curability test, overstating depreciation by more than the market recognizes. The cost to cure is the correct measure only when the cure is economically justified. Assuming any repairable item is curable is the central misconception this question targets.
Option C: Curable, averaged at $4,750
Averaging the cost and the value added produces $4,750, a figure with no basis in appraisal theory or in market behavior. Curability is a yes or no determination made by comparing two numbers, not a blend of them. Averaging appears in several distractors across this topic and is never the answer.
Option D: It is ignored entirely until the day the furnace actually fails
Deterioration accrues as a component ages and its remaining service life shrinks, so value is lost well before outright failure. A buyer inspecting a worn furnace prices the coming replacement into the offer rather than waiting for it to stop working. Treating depreciation as beginning only at failure would eliminate most physical deterioration from the analysis entirely.
Would a Buyer Write the Check
Curable means a buyer would write the check. Six thousand out to get thirty-five hundred back is a losing trade, so nobody writes it and the item is incurable. Fixable and curable are different words: fixable is about tools, curable is about arithmetic.
How to use: Line up cost to cure against value added and compare. Cost less than or equal to value added means curable, measured at cost. Cost greater means incurable, measured through age-life. Reject any option that averages the two figures or that defers recognition until failure.
Exam Tip
Remember the classification changes the measurement, not just the label; picking curable when the item is incurable also selects the wrong depreciation figure.
Common Mistakes to Avoid
- -Treating every physically repairable item as curable regardless of the economics
- -Deducting cost to cure for an item that fails the curability test
- -Assuming an incurable item causes no loss in value at all
Concept Deep Dive
Analysis
This question tests the economic test that separates curable from incurable depreciation. The word curable in appraisal does not mean physically fixable, since nearly anything can be repaired given enough money; it means economically worth fixing as of the effective date. The test compares the cost to cure against the value the cure would add, and an item is curable only when the cure adds at least as much value as it costs. Here $6,000 buys $3,500 of value, a $2,500 shortfall, so no rational buyer would undertake it and the deterioration is incurable. That classification changes how the loss is measured. Curable items are measured at their cost to cure and treated as deferred maintenance; incurable items are measured through an age-life or observed condition analysis of the component, which will capture some loss but not the full $6,000. It is worth noting the distinction is time-specific and market-specific: the same furnace could become curable if replacement costs fell, if energy prices rose enough to change buyer behavior, or in a market segment where buyers demand modern systems.
Background Knowledge
You need to know the curability test, that an item is curable when the cost to cure is no greater than the value added, and that curable physical deterioration is measured at cost to cure while incurable items are measured through age-life or observed condition analysis. You should also know the division of physical deterioration into curable deferred maintenance and incurable short-lived and long-lived components, and that curability is judged as of the effective date in the subject's market.
Real-World Application
Inspecting a 1970s home with an aging furnace, an appraiser prices replacement at $6,000 and finds from paired sales that updated heating adds roughly $3,500 in that price range. The furnace is treated as incurable physical deterioration in the short-lived component analysis rather than as deferred maintenance.
More Cost Approach Questions
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Curable physical deterioration is measured at cost to cure because:
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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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Previous Question
Deferred maintenance items observed at inspection — peeling paint, a cracked pane, a leaking faucet — are typically measured by:
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After curable items are removed, the long-lived components have a cost new of $240,000. The effective age is 12 years against a total economic life of 60 years. What is the incurable physical deterioration?