Peeling paint, a cracked pane and a leaking faucet are verified physically and economically curable, and not included in other depreciation. What evidence supports their separate allowance?
Correct Answer
C) Supported effective-date cost to cure those items.
When the items are expressly physically and economically curable, current supported repair costs can inform their loss allowance. The whole-building age-life ratio or an arbitrary 1% is not a substitute, and avoid double counting loss already included elsewhere. Deferred maintenance is not universally all economically curable without checking benefits.
Why This Is the Correct Answer
Option C is correct because curable items such as peeling paint, a cracked pane and a leaking faucet are measured by the supported cost to cure them as of the effective date. The appraiser estimates what it costs now to fix the items that are in fact curable. Because the stem says they are not included in other depreciation, a separate allowance does not double count.
Why the Other Options Are Wrong
Option A: A fixed 1% of property value for the building.
Option A is wrong because a fixed 1% of property value is an arbitrary rule, not evidence tied to these items. It has no link to what it actually costs to fix the paint, the pane and the faucet.
Option B: Historical installation cost, without current pricing.
Option B is wrong because historical installation cost without current pricing does not reflect what it costs to cure the items as of the effective date. Repair costs must be current to measure present loss.
Option D: A duplicate whole-building percentage covering the same items.
Option D is wrong because a duplicate whole-building percentage covering the same items counts the same loss twice. It also replaces item-specific cure costs with a broad ratio.
Curable means cost to cure
If it is worth fixing, measure it by what it costs to fix today. Current price, specific items, counted once.
How to use: Use this when a question asks how to measure deferred maintenance that is economically curable.
Exam Tip
For curable items, look for current, supported cost to cure. Do not assume every deferred maintenance item is curable without checking that the benefit equals or exceeds the cost.
Common Mistakes to Avoid
- -Using historical cost instead of current cost to cure
- -Applying an arbitrary percentage rather than item-specific costs
- -Deducting cure costs that are already included in an overall depreciation ratio
Concept Deep Dive
Analysis
This question tests how to measure curable physical deterioration, often called deferred maintenance. When items are both physically and economically curable and not counted elsewhere, the supported current cost to cure them as of the effective date is the logical measure. The answer should be current, item-specific and not duplicated.
Background Knowledge
Curable physical deterioration exists when the value added by a repair equals or exceeds the cost to cure. The breakdown method requires the appraiser to estimate cost to cure for items of physical deterioration and functional obsolescence that are in fact curable.
Real-World Application
An appraiser notes peeling exterior paint, a cracked window and a dripping faucet. Using current local contractor pricing, the appraiser deducts the cost to cure and makes sure the age-life estimate does not also cover these items.
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Previous Question
A functional deficiency causes an annual net income loss of $18,000 that is expected to persist. The capitalization rate for the loss, on the same income basis, is 7.5%. What is the indicated loss in value?
Next Question
The current cost new of a 2,200-sf dwelling is $195 per square foot. Its effective age is 12 years and its total economic life is 60 years. Using the straight-line age-life method with no salvage value, and with no other depreciation, what is the depreciated cost of the improvements, excluding the site?