An item is economically curable only if the benefit of curing it exceeds its cost to cure. Item A has a cost to cure of $12,500 and a benefit of $28,000. Item B has a cost to cure of $42,000 and a benefit of $18,000. There are no other effects or overlapping allowances. What is the total cost to cure of the curable items?
Correct Answer
A) $12,500
ItemA:12500<28000 eligible; ItemB:42000>18000 ineligible; sum=12500. Common errors: including the item whose cost exceeds its benefit gives $54,500; using item A's benefit instead of its cost gives $28,000; using item A's net benefit instead of its cost gives $15,500.
Why This Is the Correct Answer
Option A is correct because only Item A passes the test ($12,500 cost is less than its $28,000 benefit). Item B fails because its $42,000 cost exceeds its $18,000 benefit, so it is excluded. The question asks for cure costs, so the eligible subtotal is $12,500.
Why the Other Options Are Wrong
Option B: $15,500
Option B, $15,500, is wrong because it is Item A's net benefit ($28,000 - $12,500) rather than its cure cost. The question asks for the cost of eligible items, which is $12,500.
Option C: $28,000
Option C, $28,000, is wrong because it reports Item A's benefit instead of its cost. Item A qualifies, but the subtotal uses its $12,500 cure cost.
Option D: $54,500
Option D, $54,500, is wrong because it adds both items ($12,500 + $42,000), including Item B even though its $42,000 cost exceeds its $18,000 benefit. Only Item A's $12,500 is eligible.
Cure only if it pays
Line up each item's cost against its benefit; keep the item only if the benefit is bigger, then add up the costs you kept, not the benefits.
How to use: Use this when a question lists several items with costs and benefits and asks for an eligible cure-cost total.
Exam Tip
After deciding which items qualify, check whether the question wants costs, benefits or net amounts. Distractors are often built from the right item but the wrong figure.
Common Mistakes to Avoid
- -Adding all listed items' costs without applying the benefit test
- -Reporting the benefit or net benefit of an eligible item instead of its cure cost
- -Treating an item as curable because it is physically possible to fix, even when the cost exceeds the benefit
Concept Deep Dive
Analysis
This question tests the curable test applied item by item: an item's cure cost is counted only when its benefit exceeds its cost. Item A costs $12,500 and adds $28,000, so it qualifies; Item B costs $42,000 but adds only $18,000, so it does not. The subtotal is therefore Item A's cost alone, $12,500.
Background Knowledge
An item of deterioration or obsolescence is treated as curable when the cost to correct it is less than the economic benefit gained. Curable items are commonly measured by their cost to cure, while items that fail the test are handled as incurable and measured differently.
Real-World Application
An appraiser reviewing a dated house finds that replacing worn carpet would cost far less than the value it adds, while rebuilding an odd foundation addition would cost more than the market would pay for the change. The appraiser includes the carpet replacement cost as curable and treats the addition separately rather than adding its cost to the curable total.
More Cost Approach Questions
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An appraiser estimates the current replacement cost new of the improvements at $890,000, accrued depreciation from all causes at $170,000, and land value at $325,000. All necessary cost components and depreciation are included in those amounts. What is the indicated property value?
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What best supports a claimed loss from a bathroom-layout deficiency?
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Which scenario most strongly supports giving the cost approach substantial weight?
A cost total $650,000 explicitly includes $40,000 of non-realty FF&E outside the appraised real-property interest. Exclude it. Supported realty-only total depreciation is $55,000. Add site $200,000, with no overlap. What real-property cost indication results?
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A supported internal bathroom-utility deficiency has a physically feasible correction whose full benefit justifies full cost. How is it classified?
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The improvements consist of two component groups that do not overlap, with costs new of $40,000 and $610,000. The first group is fully depreciated; the second has total depreciation of 20%. No other loss applies, and the site is valued at $170,000. What value does the cost approach indicate?