Physical deterioration that is curable is measured by cost to cure, while incurable deterioration is measured by:
Correct Answer
D) Age-life ratios applied to the remaining cost
Why this is correct: Incurable physical deterioration is depreciation where the cost to cure exceeds the value added by the cure, or the item is not feasible to repair. It is measured by applying an age-life ratio (effective age / total economic life) to the reproduction or replacement cost new of the component. Why the other choices are wrong: 'The property's total accrued depreciation' is the sum of all depreciation types, not the measure for incurable physical. 'The full replacement cost of the component' would be the measure if it were curable. 'A flat percentage set by the cost service' is not a standard appraisal method for incurable deterioration. Exam tip: Curable = cost to cure. Incurable = age-life method applied to cost.
Why This Is the Correct Answer
Incurable physical deterioration is measured by applying an age-life ratio to the cost basis remaining after curable and short-lived items have been removed.
Why the Other Options Are Wrong
Option A: The property's total accrued depreciation
Total accrued depreciation includes functional and external obsolescence as well as physical deterioration, and is the sum rather than a component.
Option B: The full replacement cost of the component
The full replacement cost of a component measures nothing about how much of its life has been consumed.
Option C: A flat percentage set by the cost service
A flat percentage from a cost service is not derived from the specific building's effective age and condition.
Curable Costs, Incurable Ages
Curable Costs, Incurable Ages. Fix it and charge the fix; cannot fix it and charge the ratio.
How to use: Remove curable and short-lived costs from the basis before applying the ratio, or you charge for them twice.
Exam Tip
Effective age reflects condition and modernisation rather than years since construction, which is why a well-maintained older building shows less depreciation.
Common Mistakes to Avoid
- -Applying the age-life ratio to full cost new
- -Using chronological rather than effective age
- -Measuring incurable items at replacement cost
Concept Deep Dive
Analysis
Physical deterioration divides according to whether correction is economically justified. Curable items — a worn roof covering, deferred painting, a failed water heater — are measured by the cost to cure, because a buyer would deduct what it takes to put them right and the expenditure is recovered in value. Incurable deterioration cannot be measured that way, because by definition the cost of correction would not be recovered, or the item cannot practically be replaced at all: the structural frame, foundations, and the accumulated wear of long-lived components. Those are measured by an age-life ratio — effective age divided by total economic life — applied to the cost basis remaining after curable and short-lived items have been removed. Effective age rather than chronological age is used, since maintenance and modernisation change how old a building performs relative to its years. The removal step matters: applying the ratio to the full cost would charge the curable and short-lived items twice.
Background Knowledge
Physical deterioration is curable where cost to cure is recovered in value, measured by that cost. Incurable deterioration is measured by an age-life ratio using effective age and total economic life, applied to the remaining cost basis.
Real-World Application
An appraiser measures deferred maintenance at cost to cure, then applies a 25 percent effective-age ratio to the remaining long-lived cost basis.
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:
Functional obsolescence caused by a deficiency is measured as curable when:
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:
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