Which use of cost-to-cure is appropriate under the stated facts?
Correct Answer
C) Analyze the supported cost of correcting a physically and economically curable subject deficiency.
For a physically and economically curable subject deficiency, cost-to-cure can inform a supported loss allowance. An outside influence the owner cannot remedy is not measured merely by a subject repair invoice or assumed cured by repainting; investigate market reaction or supported income loss. Cost-to-cure is not limited to land; it is commonly applied to building deficiencies.
Why This Is the Correct Answer
Option C is correct because cost-to-cure fits a subject deficiency that is physically and economically curable. A deficiency is considered curable when the cost to correct it is less than the economic benefit gained. In that case the supported cost of correction can inform the loss allowance.
Why the Other Options Are Wrong
Option A: Use an arbitrary repair invoice as the entire loss from an unremediable off-site influence.
Option A uses an arbitrary repair invoice as the entire loss from an unremediable off-site influence. An outside influence the owner cannot cure is not measured by a subject repair bill; it calls for analysis of market reaction or supported income loss.
Option B: Assume an external influence can be cured by repainting the building.
Option B assumes an external influence can be cured by repainting the building. Repainting the subject does nothing to remove a cause located outside the property, so this misapplies cost-to-cure.
Option D: Use the method for land, but not for defects in the building.
Option D says to use the method for land but not for building defects. That reverses common practice; cost-to-cure is commonly applied to building deficiencies such as worn components or correctable design problems.
Cure what you control
Cost-to-cure works for problems on the property that are worth fixing. You cannot paint away a problem next door.
How to use: Use this to decide whether cost-to-cure is the right measure for a described loss.
Exam Tip
Pair cost-to-cure with curable physical or functional items, and look for market or income measures for external losses.
Common Mistakes to Avoid
- -Using cost-to-cure for incurable external influences
- -Treating a repair whose cost exceeds the benefit as curable
- -Assuming cost-to-cure does not apply to building defects
Concept Deep Dive
Analysis
This question tests the proper use of cost-to-cure. Cost-to-cure can measure a loss from a subject deficiency that is physically correctable and economically feasible to correct, meaning the cost is less than the benefit. It is not a measure for outside influences the owner cannot remedy.
Background Knowledge
Curability depends on whether the cost of correcting a deficiency is less than the value it adds. Curable physical deterioration and curable functional obsolescence are often measured by cost-to-cure. External obsolescence is generally beyond the owner's control and is measured with market or income evidence instead.
Real-World Application
An appraiser finds a house with a broken water heater and peeling exterior paint, both inexpensive to fix relative to the value they add. The appraiser uses contractor estimates as the cost-to-cure, while a nearby noisy rail line is analyzed with paired sales instead.
More Cost Approach Questions
Why can equivalent-utility replacement cost be useful for an obsolete improvement?
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?
Improvement cost new is $595,000. Separately supported improvement depreciation deductions of $48,000, $27,000 are expressly nonoverlapping and not already excluded from cost new. Add supported site value of $155,000, already reflecting any site losses. What total indicated value results?
What best supports a claimed loss from a bathroom-layout deficiency?
Improvement cost new is $1,850,000. Separately supported improvement depreciation deductions of $310,000, $620,000 are expressly nonoverlapping and not already excluded from cost new. No site is included. What depreciated improvement amount results?
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?
A 2,200-sf dwelling costs $200 per square foot, and a separate 400-sf garage costs $75 per square foot. These costs are complete and do not overlap. Both have an effective age of 15 years and a total life of 50 years, with straight-line depreciation and no salvage value. No site value or other loss is involved. What is the combined depreciated cost of the dwelling and garage?
A new feature in the improvements has a current cost of $45,000 and a market contribution of $18,000. The entire difference is due to superadequacy, with no physical or external loss and no overlap. What is the loss from the superadequacy?
An external influence causes an annual net income loss of $9,600. The capitalization rate for the loss is 8%, and no other economic factors change. What is the indicated loss in value of the whole property, before allocation between site and improvements?
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