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 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
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?