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
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.
More cost-approach Questions
In a cost approach for a proposed building, the appropriate cost basis is generally:
A 45-year-old office building has undergone multiple high-quality renovations, including HVAC replacement, seismic retrofitting, and full interior modernization. Its functional layout remains competitive with new construction, and it occupies a stable, well-located corridor. The appraiser estimates its total economic life at 70 years. Which estimate of effective age is most supportable under USPAP and recognized cost approach methodology?
A warehouse cost $210,000 to build when the cost index stood at 105. The index is now 210. Its indicated current cost is:
An appraiser is estimating accrued depreciation for a commercial office building using the age-life method. The building was constructed in 1992 and has a total economic life of 60 years. As of the appraisal date in 2024, the appraiser determines the property’s effective age is 36 years due to consistent maintenance, modernized systems, and favorable market perception. What is the percent of accrued depreciation indicated by the age-life method?
Which event would RAISE a building's effective age relative to last year's estimate?
Two identical houses were built the same year; one has been meticulously maintained, the other neglected. Their age-life analyses differ because:
Which statement is MOST consistent with USPAP Standards Rule 6 regarding the identification and treatment of external obsolescence in the cost approach?
A 40-year-old industrial warehouse has undergone no major renovations and suffers from outdated electrical systems, inefficient insulation, and obsolescent loading dock design. Market evidence indicates similar properties typically exhibit functional obsolescence reducing utility by 15% and external obsolescence reducing value by 10%. If the appraiser uses the age-life method with a total economic life of 50 years, how should effective age be adjusted to reflect these conditions?
In developing an age-life depreciation estimate, an appraiser assigns an effective age of 16 years and a total economic life of 40 years. Later, the appraiser discovers that comparable properties in the same submarket have recently sold with effective ages averaging 12 years and total economic lives averaging 45 years — and those sales exhibited superior energy efficiency and adaptive reuse features. What is the appraiser’s USPAP-compliant obligation regarding the original effective age estimate?
The age-life method expresses depreciation as:
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Previous Question
Deferred maintenance items observed at inspection — peeling paint, a cracked pane, a leaking faucet — are typically measured by:
Next Question
An appraiser applies 30% depreciation from age-life, then separately deducts a further 10% for the worn roof included in that ratio. The error is: