Adding a second bathroom to an existing house costs $22,000; the same bathroom in new construction would have cost $14,000. The market pays $25,000 for it. How is the curable deficiency measured?
Correct Answer
C) $22,000 less $14,000, the excess of adding it late
Why this is correct: This describes functional obsolescence due to a deficiency (lack of a second bathroom). The cost to cure the deficiency is the extra cost incurred by adding it to an existing structure versus including it in original construction. This 'penalty' is the measure of the obsolescence: $22,000 (retrofit cost) - $14,000 (new construction cost) = $8,000. Why the other choices are wrong: $14,000 is the cost if it were built new, which is already included in the replacement cost new figure. $25,000 is the contributory value, which is greater than the cure cost, making it curable, but the obsolescence is measured by the cost penalty. $3,000 is the net gain ($25,000 - $22,000), not the measure of the deficiency. Exam tip: For a curable functional deficiency, the obsolescence is the excess cost of adding it later: Retrofit Cost - Cost if New.
Why This Is the Correct Answer
Option C is correct because it isolates the excess cost of adding the bathroom late, $22,000 less $14,000, or $8,000. That difference is the only portion of the cost not already reflected in replacement cost new, so it is the only portion that can be deducted without duplication. The curability test is satisfied separately, since the $25,000 the market pays exceeds the $22,000 cure. Keeping the two determinations distinct, whether it is curable and how much the obsolescence is, is what the item is really testing.
Why the Other Options Are Wrong
Option A: $14,000, the cost in new construction
The $14,000 new-construction cost is the amount already included in replacement cost new for a building that has the bathroom. Deducting it as obsolescence would remove a component the cost estimate assumed present, understating the improvements by the value of a bathroom the cure will actually deliver. It is a real number in the problem but plays the opposite role from the one this option assigns it.
Option B: $25,000, the market's full contributory value for the bathroom
The $25,000 the market pays is the contributory value of the completed bathroom, which is the figure used to test whether curing is economically justified. It is not the measure of the loss, since the property is not $25,000 short of a bathroom; it is short by the extra cost of installing one now. Confusing the curability test with the measurement is the most common error on this topic.
Option D: $3,000, the profit from curing it
The $3,000 figure is the spread between the $25,000 market contribution and the $22,000 cure cost, which represents the gain an owner would realize by doing the work. Profit from curing is not a depreciation measure, and an item can be curable with a large or a small spread without changing the obsolescence. This distractor rewards the arithmetic reflex of subtracting the two largest numbers in the stem.
Pay Only the Late Fee
Cost new already bought you the bathroom, so do not buy it twice. What you owe is the late fee, the extra you pay for doing it after the walls went up. Twenty-two thousand now minus fourteen thousand then equals an eight thousand dollar late fee, and that is the obsolescence.
How to use: Ask what replacement cost new already includes before deducting anything. For a missing feature, subtract the new-construction cost from the retrofit cost and deduct only the difference. Use the market contribution separately to confirm curability, and never deduct it as the obsolescence itself.
Exam Tip
These items typically place four numbers in the stem where only two matter; identify which figure is already inside cost new, and the correct subtraction becomes obvious.
Common Mistakes to Avoid
- -Deducting the full retrofit cost and double counting what replacement cost new already includes
- -Using the market's contributory value as the measure of obsolescence rather than as the curability test
- -Failing to test curability at all and assuming any missing standard feature is curable
Concept Deep Dive
Analysis
This question tests how curable functional obsolescence from a deficiency is measured in the cost approach, and the answer turns on avoiding a double count. Replacement cost new already assumes a building constructed today with all the features a modern equivalent would have, which means the $14,000 second bathroom is already sitting inside the cost new figure. The subject, however, lacks that bathroom, and adding it to an existing structure costs $22,000 because of demolition, working within finished space, rerouting plumbing and venting, and the inefficiency of retrofit work. The obsolescence is therefore not the whole bathroom but the penalty for not having built it originally, which is the $22,000 retrofit cost less the $14,000 already embedded in cost new, or $8,000. Deducting the full $22,000 would remove the $14,000 twice, once through the cost new figure and again as depreciation. The item is curable because the market pays $25,000, comfortably more than the $22,000 cure, and that comparison is what establishes curability, while the excess cost is what quantifies the obsolescence.
Background Knowledge
You need to know that functional obsolescence divides into deficiencies and superadequacies, each of which can be curable or incurable, and that curability is tested by comparing cost to cure against value added. You should also know that measurement depends on what replacement cost new already assumes, which is why a curable deficiency requiring an addition is measured as the excess cost of installing it now over the cost of including it originally.
Real-World Application
Valuing a three-bedroom home with a single bathroom in a market where two is standard, an appraiser obtains a $22,000 contractor bid, prices the same fixture package at $14,000 in new construction, and deducts $8,000 as curable functional obsolescence, noting paired sales support roughly $25,000 of contributory value.
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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