An appraiser is developing a cost approach for a 1958 ranch-style home. The original construction used balloon framing with 2×4 studs spaced 24 inches on center, no engineered floor joists, and a crawl space with minimal ventilation. Current market new construction uses platform framing, 2×6 studs at 16 inches on center, engineered I-joists, and conditioned crawl spaces. How should the appraiser treat these differences in the cost approach?
Correct Answer
A) Apply a percentage depreciation for functional obsolescence due to inferior design and materials.
Functional obsolescence arises from deficiencies or superadequacies in design, layout, or construction methods that reduce utility relative to current market standards. Balloon framing (fire-spread risk), wider stud spacing (reduced insulation and structural capacity), and unconditioned, poorly ventilated crawl spaces are recognized design deficiencies per Marshall & Swift and RS Means cost manuals—and are not correctable without full reconstruction. Thus, they represent incurable functional obsolescence, requiring a specific depreciation allowance separate from physical deterioration or external obsolescence. Option B is incorrect because effective age reflects overall condition, not specific design flaws. Option C misclassifies incurable obsolescence as curable physical deterioration. Option D incorrectly adjusts RCN rather than applying depreciation.
Why This Is the Correct Answer
Functional obsolescence arises from deficiencies or superadequacies in design, layout, or construction methods that reduce utility relative to current market standards. Balloon framing (fire-spread risk), wider stud spacing (reduced insulation and structural capacity), and unconditioned, poorly ventilated crawl spaces are recognized design deficiencies per Marshall & Swift and RS Means cost manuals—and are not correctable without full reconstruction. Thus, they represent incurable functional obsolescence, requiring a specific depreciation allowance separate from physical deterioration or external obsolescence. Option B is incorrect because effective age reflects overall condition, not specific design flaws. Option C misclassifies incurable obsolescence as curable physical deterioration. Option D incorrectly adjusts RCN rather than applying depreciation.
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