What supports classifying a functional deficiency as economically curable?
Correct Answer
B) Its full supported value benefit justifies the full cure cost.
Physical feasibility, owner intent and age alone do not establish economic curability. Compare the full supported cure cost with its value benefit; under the stated exclusive alternatives, the benefit must justify cost. The depreciation amount still must fit the chosen cost base.
Why This Is the Correct Answer
Option B is correct because functional obsolescence is curable when the cost to cure is equal to or less than the value added by curing it. When the full supported value benefit justifies the full cure cost, the cure makes economic sense. That cost and benefit comparison is what supports the curable classification.
Why the Other Options Are Wrong
Option A: A contractor confirms the work is physically possible.
Option A relies on a contractor confirming the work is physically possible. Many cures are physically possible but cost more than they add in value, so physical feasibility alone does not make a deficiency economically curable.
Option C: The owner intends to fix the deficiency within the coming year.
Option C relies on the owner's intent to fix the deficiency within the coming year. An owner's plans do not change whether the cure cost is justified by the value gain; curability is a market test.
Option D: The building is under 20 years old, with no cost-benefit check.
Option D relies on the building being under 20 years old, with no cost-benefit check. Building age does not determine curability; the cost to cure must still be compared with the value benefit.
Benefit covers cost, curable
If the value gained from the fix is at least as much as the fix costs, the item is curable.
How to use: Use this test on any question asking whether a functional item is curable.
Exam Tip
Look for the answer that compares cost to cure with value gained. Feasibility, intent and age are common distractors.
Common Mistakes to Avoid
- -Treating physical feasibility as proof of curability
- -Relying on the owner's repair plans
- -Using building age as a curability test
Concept Deep Dive
Analysis
This question tests the economic test for curable functional obsolescence. A deficiency is curable when the value gained from curing it is equal to or greater than the cost to cure. Physical feasibility, owner plans and building age do not by themselves meet that test.
Background Knowledge
Curable functional obsolescence exists when a prudent buyer would pay to correct the item because the value gained equals or exceeds the cost. Incurable functional obsolescence exists when the cure cost exceeds the benefit. The test is economic, not physical, and it relies on market evidence of the value benefit.
Real-World Application
An appraiser notes a home with an outdated electrical panel that buyers in the market discount heavily. A contractor's estimate to replace it is less than the price difference shown by comparable sales, so the appraiser treats the item as curable functional obsolescence.
More Cost Approach Questions
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A functional deficiency costs $42,000 to correct but the entire supported value gain/loss is $31,000, with no other benefits or required work. What treatment fits?