Deferred maintenance is measured at cost to cure rather than by age-life because:
Correct Answer
C) The market prices those items at what fixing them costs
Why this is correct: Deferred maintenance (curable physical deterioration) is measured by cost to cure because the market typically discounts the property's value by approximately the cost to repair those items. Buyers and sellers base their price negotiations on the estimated repair cost, not on an age-life percentage. Why the other choices are wrong: 'Age-life ratios cannot be computed for exterior components' is wrong; they can be, but cost to cure is more direct. 'It is the least expensive method for the appraiser to apply' is wrong; ease of application is not the rationale. 'Lenders require cost estimates for all curable items' may be true, but it's not the fundamental appraisal reason. Exam tip: For curable items (where cost to fix is less than or equal to value added), use cost to cure. For incurable items, use age-life or other methods.
Why This Is the Correct Answer
The market pricing those items at what fixing them costs is the operative reason, and it explains why the choice of method is empirical rather than conventional. What follows in practice is that cost to cure must be developed as of the effective date from current pricing, ideally supported by contractor estimates or published repair cost data in the workfile, rather than estimated from memory. The appraiser should also confirm the feasibility test for each item, since an expenditure that does not return its cost belongs on the incurable side and would be overstated if charged at cure. Where the market visibly penalizes a deficiency by more than its repair cost, that additional discount is a market observation to be analyzed and supported, not an adjustment to the cure figure.
Why the Other Options Are Wrong
Option A: Age-life ratios cannot be computed for exterior components
Age-life ratios can be computed for exterior components as readily as for any other, and appraisers regularly analyze roofing, siding, and paint as short-lived components with their own effective ages and lives. The reason cost to cure applies to deferred maintenance is behavioral, not a computational impossibility. The option offers a false technical limitation.
Option B: It is the least expensive method for the appraiser to apply
Method selection is driven by which approach best replicates market behavior, and convenience never justifies a method. Cost to cure is often more work than an age-life fraction, since it requires current repair pricing and support. Choosing methods by ease of application would be indefensible on review.
Option D: Lenders require cost estimates for all curable items
Lender requirements do influence what appears in a report prepared for a lending client, and repair estimates are frequently requested, but a client requirement is not the appraisal theory reason. The method would be correct with no lender involved at all. Confusing a client's expectations with the analytical rationale is the error being tested.
Buyers Get Estimates, Not Percentages
Nobody negotiating a house computes an age-life fraction for a broken furnace. They get a quote and subtract it. Method follows behavior, and the behavior here is a repair estimate.
How to use: When asked to justify a depreciation method, answer with market behavior first. Then check the double-count guard, which is that curable items come out of the base before ratios are applied. Reject rationales built on computational impossibility, convenience, or client requirements.
Exam Tip
Cost to cure because that is how the market prices it. Never justify a method by ease of application or by client demand.
Common Mistakes to Avoid
- -Applying an age-life ratio to a component whose deferred maintenance has already been deducted at cost to cure
- -Estimating cost to cure from memory rather than from supportable current pricing
- -Justifying a method by client expectations rather than by market behavior
Concept Deep Dive
Analysis
This item asks why cost to cure is the measurement instrument for deferred maintenance rather than age-life, and the answer lies in what each instrument is designed to capture. Age-life reasoning distributes total depreciation across a component's economic life on the assumption of gradual, proportional loss, which describes long-lived components aging steadily toward replacement. Deferred maintenance does not behave that way, because the loss is not proportional to elapsed time but is concentrated in a specific deficiency that exists in full today and disappears entirely when the repair is made. Market participants price it accordingly, deducting the repair estimate they obtain rather than reasoning about the item's remaining life, which is why cost to cure reproduces observed pricing and an age-life fraction does not. There is also an internal consistency argument: charging a curable item both a cure and a share of an age-life ratio would count the same loss twice, which is why breakdown analysis removes curable items from the base before applying ratios to what remains.
Background Knowledge
You need to know that age-life methods spread depreciation proportionally over economic life while cost to cure measures a specific deficiency in full, and why market behavior favors each in its own domain. You should know that curable items are removed before age-life ratios are applied to the remainder, to avoid double counting. You also need to know that cost to cure is developed at current pricing as of the effective date and supported in the workfile, and that additional market penalties beyond the cure require their own support.
Real-World Application
For a house with a failed roof section, an inoperative water heater, and a rotted porch step, the appraiser obtains current repair pricing for each and deducts the total as curable physical deterioration. She then applies age-life reasoning to the remaining short-lived and long-lived components, taking care that the roof section already cured is not charged again inside the roofing component's age-life analysis.
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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An industrial property sits beside a river historically used for barge traffic. A new federal regulation bans commercial navigation on the river, eliminating the subject’s water-access advantage. The appraiser estimates the property’s land value — using sales of comparable industrial sites *with water access* — at $1,200,000. The improvement’s replacement cost new is $3,800,000, with physical depreciation of $570,000 and functional obsolescence of $220,000. Market data indicate water-access sites sell for a 15% premium over non-water-access comparables. What is the appropriate treatment of the external obsolescence arising from the navigation ban?
Next Question
An appraiser is estimating external obsolescence for a retail strip center located adjacent to a newly rezoned heavy industrial corridor. Market evidence shows that comparable centers without such adjacency rent for $18.50/sf/year, while the subject rents for $14.20/sf/year. The subject’s gross leasable area is 25,000 sf, and its effective gross income multiplier (EGIM) is 7.5. The appraiser has determined that the land-to-improvements ratio is 30% land / 70% improvements. How much of the estimated external obsolescence is allocated to the improvements?