An identified deferred repair is physically feasible and its value benefit exceeds its full cost to cure. How does it differ from economically incurable deterioration?
Correct Answer
D) It is economically justified to cure under the stated facts.
For the expressly curable deferred-maintenance item, the supported cost to cure is economically justified. Neither a structural-only classification nor a claim that no owner can fix it follows. Deferred maintenance as a broad term does not prove immediate correction is always prudent.
Why This Is the Correct Answer
Option D is correct because curable physical deterioration occurs when the value added by a repair equals or exceeds the cost to cure. Here the value benefit exceeds the full cost, so curing is economically justified, unlike incurable deterioration where repair is not economically feasible.
Why the Other Options Are Wrong
Option A: It cannot be corrected by any owner.
Option A, that it cannot be corrected by any owner, is wrong because the repair is described as physically feasible and economically worthwhile. That describes something that can be corrected.
Option B: It involves structural components rather than finishes.
Option B, that it involves structural components rather than finishes, is wrong because curability depends on cost versus value added, not on whether the component is structural or a finish.
Option C: It is measured by a whole-building age-life percentage.
Option C, that it is measured by a whole-building age-life percentage, is wrong because curable items are typically measured by their cost to cure, not by applying a whole-building age-life ratio.
Curable means it pays off
Curable items earn back at least their cost when fixed. Incurable items cost more than they add.
How to use: Use this pay-off test to separate curable from incurable deterioration.
Exam Tip
Choose the answer framed in terms of cost to cure versus value added. Answers based on component type or impossibility of repair do not reflect the economic test.
Common Mistakes to Avoid
- -Defining curable by whether the item is structural
- -Thinking incurable means physically impossible to fix
- -Measuring a curable item with a whole-building age-life percentage
Concept Deep Dive
Analysis
This question tests the difference between curable and incurable physical deterioration. Curable deferred maintenance is an item whose repair adds at least as much value as it costs. Incurable deterioration is an item whose repair cost exceeds the value it adds.
Background Knowledge
Curable physical deterioration, also called deferred maintenance, exists when the value added by a repair equals or exceeds its cost. Incurable physical deterioration exists when the value added is less than the cost to cure as of the valuation date. The test is economic, not based on component type.
Real-World Application
An appraiser notes peeling exterior paint on a home where a fresh paint job would add more value than it costs. The appraiser treats it as curable deferred maintenance and measures it by the cost to cure.
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The subject is a single-family residence whose improvements have a current cost new of $720,000, an effective age of 18 years, and a total economic life of 72 years. The site value of $248,000 already reflects any site influences. Using the straight-line age-life method, with no salvage value or other deductions, what is the total indicated value, including the site?
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