A California appraiser must estimate the cost of curing functional obsolescence for a home in Palo Alto. The home has an outdated kitchen that does not meet current Silicon Valley market expectations. The cost to renovate the kitchen to current standards is $120,000. An appraiser's paired sales analysis shows that similar kitchen renovations in this California market add $160,000 to property values. A second functional issue is an oversized formal dining room (superadequacy) that cost $40,000 to build but only contributes $15,000 in market value. What is the total functional obsolescence?
Correct Answer
B) $145,000
Step 1: Kitchen (deficiency — curable): Cost to cure = $120,000. Since cost to cure ($120,000) < value added ($160,000), it is curable. Depreciation = cost to cure = $120,000. Step 2: Dining room (superadequacy): The excess cost that does not contribute to value = Cost to build ($40,000) - Value contributed ($15,000) = $25,000. Step 3: Total functional obsolescence = $120,000 + $25,000 = $145,000.
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Previous Question
A California appraiser is using the cost approach to value a property in a Mello-Roos Community Facilities District. The Mello-Roos special tax funds infrastructure improvements such as roads, sewers, and parks in the district. How should the appraiser treat the Mello-Roos-funded infrastructure when estimating land value?
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