California Real Estate SalespersonProperty Valuation and Financial AnalysisHard
A four-bedroom home has only one bathroom, and the floor plan makes adding a second bathroom structurally impractical without a costly major renovation. What type of depreciation does this represent?
- AIncurable functional obsolescence
- BPhysical deterioration
- CCurable functional obsolescence
- DEconomic obsolescence
Show answer & explanationAnswer & explanation
Correct answer: A. Incurable functional obsolescence
Because the deficiency (inadequate bathrooms) cannot be corrected without disproportionate expense relative to the value it would add, this is incurable functional obsolescence—a loss in value due to outdated or inadequate design features that are not economically feasible to fix.
Why the other options are wrong
- B. Physical deterioration relates to wear and tear on physical components, not design deficiencies.
- C. Curable would apply if the fix cost were reasonable compared to the value it adds.
- D. Economic obsolescence stems from external factors, not internal design flaws.
Functional Obsolescence
A loss in value due to outdated, inadequate, or poor design features within the property itself, which can be curable (economical to fix) or incurable (not economical to fix).
- Internal to the property (unlike economic obsolescence)
- Curable if cost to fix is less than value added
- Incurable if cost to fix exceeds value added or is impractical
Memory trick: Fix it cheap? Curable. Fix it dear? Incurable!