Deferred maintenance items observed at inspection — peeling paint, a cracked pane, a leaking faucet — are typically measured by:
Correct Answer
C) Their cost to cure as of the effective date
Why this is correct: The governing concept is that deferred maintenance represents curable physical deterioration. It is measured by the cost to repair or replace the defective items as of the effective date of the appraisal, not by a percentage or age-life formula. Why the other choices are wrong: "A fixed one percent of the value" is wrong; this is an arbitrary rule of thumb, not a supported method. "The age-life ratio of the whole building" is wrong; deferred maintenance is cured separately before applying age-life ratios. "The original installation cost of each item" is wrong; the relevant cost is the current cost to cure. Exam tip: Deferred maintenance = cost to cure. Deduct it first in a breakdown depreciation analysis.
Why This Is the Correct Answer
Their cost to cure as of the effective date states both the measure and the timing, which is the complete answer. Supporting it means assembling actual pricing, whether from contractor estimates obtained for the assignment, from published repair cost data, or from the appraiser's documented market knowledge, and retaining that support in the workfile so the deduction can be reconstructed. The appraiser should also confirm feasibility item by item, though for small maintenance repairs the test is almost always satisfied. Finally, the report should be clear about what was included in the deduction, since a reader who sees a single deferred maintenance figure has no way to know whether it covers the three items observed or something broader.
Why the Other Options Are Wrong
Option A: A fixed one percent of the value
A fixed percentage of value is a rule of thumb with nothing behind it, and it would produce the same allowance for a house with three small repairs as for one with none. Rules of thumb cannot be supported on review and do not reflect anything about the specific deficiencies observed. Percentage allowances are the classic unsupported shortcut in this part of the cost approach.
Option B: The age-life ratio of the whole building
A whole-building age-life ratio measures depreciation across the improvement from all causes and is not designed to capture specific deficiencies, and applying it to items that will also be deducted at cure double counts them. Deferred maintenance comes out first precisely so the ratio can be applied cleanly to the remainder. The option collapses two distinct steps.
Option D: The original installation cost of each item
Original installation cost reflects prices and market conditions at construction, which may be decades removed from the effective date, and it says nothing about what repair costs today. Depreciation is measured against current cost new and current cures, not historical outlays. Reaching for original cost is a persistent instinct that the effective date discipline should correct.
Price Each One, Price It Today
Two rules for the small stuff: itemize it, and price it at today's rates. Not a percentage, not a lump, not what it cost when it was new. A list with a number beside each line, dated to your effective date.
How to use: Build the deferred maintenance deduction as an itemized list with current pricing and keep the support in the workfile. Deduct it before applying any age-life analysis. Reject percentage allowances, whole-building ratios, and original cost as the measurement basis.
Exam Tip
Itemize and price at the effective date. Percentage allowances and original cost are both unsupportable.
Common Mistakes to Avoid
- -Using a percentage allowance in place of itemized current repair pricing
- -Deducting deferred maintenance and then including the same items in an age-life analysis
- -Reporting a single deferred maintenance figure without identifying which items it covers
Concept Deep Dive
Analysis
This item takes the same principle down to the item level, which is where the workfile support actually gets built. Peeling paint, a cracked pane, and a leaking faucet are small, discrete, physically curable deficiencies that a buyer prices by getting a number, and the appraiser mirrors that by developing a cost to cure for each as of the effective date. Two details in that sentence carry the exam's weight. Each item is measured individually rather than lumped into a percentage, because a lump-sum allowance has no support behind it and cannot be reconstructed on review. And the pricing is current as of the effective date, meaning what it would cost to fix these items now rather than what the window or the faucet originally cost, since original cost bears no relationship to today's repair market. The resulting figure is deducted first in a breakdown analysis, before the surviving short-lived and long-lived components are analyzed, so the same loss is never counted twice.
Background Knowledge
You need to know that deferred maintenance is measured item by item at current cost to cure as of the effective date, and that this figure is deducted first in a breakdown depreciation analysis. You should know what constitutes acceptable support, including contractor estimates, published repair cost data, and documented market knowledge, all retained in the workfile under the RECORD KEEPING RULE. You also need to know the surrounding structure of the cost approach, including replacement or reproduction cost new, the three categories of accrued depreciation, site improvements, and land value.
Real-World Application
Inspecting a rental house, the appraiser lists peeling exterior paint on two elevations, one cracked window pane, and a leaking kitchen faucet, obtains current pricing for each from a contractor she uses for such estimates, and deducts the itemized total as curable physical deterioration. Her workfile holds the estimate, the photographs, and her notes, and her report identifies exactly which items the deduction covers.
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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