An appraiser reviews three items of physical deterioration at a dwelling: roofing, with a cost to cure of $9,200 and a benefit of $18,000; foundation, with a cost to cure of $45,000 and a benefit of $12,000; and paint, with a cost to cure of $3,800 and a benefit of $5,500. An item is economically curable only if its benefit exceeds its cost to cure, and there are no other costs or benefits. What is the total cost to cure of the curable items?
Correct Answer
B) $13,000
9200<18000 eligible;45000>12000 ineligible;3800<5500 eligible;9200+3800=13000. Common errors: including the foundation, whose cost exceeds its benefit gives $58,000; adding the eligible items' benefits instead of their costs gives $23,500; leaving out the eligible paint item gives $9,200.
Why This Is the Correct Answer
Option B is correct because roofing ($9,200 cost versus $18,000 benefit) and paint ($3,800 versus $5,500) both cost less than their benefit, while the foundation ($45,000 versus $12,000) does not. The eligible subtotal is $9,200 + $3,800 = $13,000. The figures summed are the cure costs, as the question directs.
Why the Other Options Are Wrong
Option A: $9,200
Option A, $9,200, includes only the roofing cost and leaves out the paint item, which is also eligible because its $3,800 cost is less than its $5,500 benefit. The correct subtotal is $9,200 + $3,800 = $13,000.
Option C: $23,500
Option C, $23,500, adds the eligible items' benefits ($18,000 + $5,500) instead of their costs. The question asks for cure costs: $9,200 + $3,800 = $13,000.
Option D: $58,000
Option D, $58,000, adds all three costs ($9,200 + $45,000 + $3,800), including the foundation whose $45,000 cost exceeds its $12,000 benefit. Excluding it gives $13,000.
Cure if it pays
An item is curable when fixing it adds more value than it costs. If the fix costs more than it returns, it is incurable.
How to use: Use this to sort each deferred maintenance item before adding up curable costs.
Exam Tip
Test each item separately before adding anything. Then check whether the question wants costs or benefits in the total.
Common Mistakes to Avoid
- -Including items whose cure cost exceeds their benefit
- -Summing benefits instead of cure costs
- -Skipping a small eligible item when adding the subtotal
Concept Deep Dive
Analysis
This question tests the curability test for physical deterioration. Each item is compared: if the cost to cure is less than the benefit, it is curable and its cost is included. The eligible costs are then summed.
Background Knowledge
An element of physical deterioration is considered curable when the cost to correct it is less than the economic benefit gained. Items that cost more to fix than the value they add are treated as incurable, and their loss is measured differently.
Real-World Application
An appraiser notes a worn roof, peeling paint and a settled foundation. Contractor bids show the roof and paint repairs would add more value than they cost, while the foundation repair would not, so only the roof and paint are treated as curable physical deterioration.
More Cost Approach Questions
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Improvement cost new $500,000 has supported 62% good factor accounting for all loss. Add supported site $240,000. What total results?
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The roof of a dwelling has a current cost new of $18,000, an effective age of 10 years and a component economic life of 25 years. Assuming straight-line depreciation with no salvage value, what is the depreciation of the roof?