Functional obsolescence caused by a deficiency is measured as curable when:
Correct Answer
B) The cure adds at least as much value as it costs
Why this is correct: A functional deficiency is measured as curable only if the cost to correct it is less than or equal to the anticipated increase in value (i.e., it is economically feasible). Why the other choices are wrong: The defect is physically possible to correct is wrong; physical possibility alone does not make it curable for appraisal purposes. The owner intends to make the correction is wrong; the owner's intent is irrelevant to the market-based test. The building is less than twenty years old is wrong; age is not the determining factor. Exam tip: Curability is an economic test, not a physical one.
Why This Is the Correct Answer
Why this is correct: A functional deficiency is measured as curable only if the cost to correct it is less than or equal to the anticipated increase in value (i.e., it is economically feasible). Why the other choices are wrong: The defect is physically possible to correct is wrong; physical possibility alone does not make it curable for appraisal purposes. The owner intends to make the correction is wrong; the owner's intent is irrelevant to the market-based test. The building is less than twenty years old is wrong; age is not the determining factor. Exam tip: Curability is an economic test, not a physical one.
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:
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:
A 45-year-old office building has undergone extensive system upgrades (HVAC, electrical, fire suppression) and interior modernization, resulting in strong tenant demand and rental rates exceeding those of newer buildings in the area. The appraiser estimates its total economic life at 65 years. Which statement best reflects the likely relationship among its chronological age, effective age, and remaining economic life?
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Previous Question
A certified general appraiser is developing a cost approach for a 25-year-old office building located in a neighborhood where new zoning prohibits future office development and mandates residential conversion. The appraiser estimates the site’s highest and best use is now residential, and determines the land value — based on vacant residential land sales — is $850,000. The building’s replacement cost new is $2,100,000, with accumulated physical depreciation of $315,000 and functional obsolescence of $140,000. External obsolescence is present due to the zoning change. How should the appraiser treat external obsolescence in this scenario?
Next Question
An older single-family residence has a 600-sq-ft finished basement with low ceilings (6'4”), no egress windows, and exposed utility piping — features inconsistent with current market expectations for finished basements. Comparable newer homes include basements with 7' ceilings, egress, drywall, and recessed utilities. The appraiser estimates it would cost $42,000 to upgrade the basement to current standards, and that such an upgrade would increase market value by $31,000. What is the appropriate treatment of this deficiency in the cost approach?