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
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.
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
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?