Property Valuation
Which type of depreciation in the cost approach is considered 'incurable'?
ADeferred maintenance that is easily repaired
BFunctional obsolescence from a poor floor plan where the cost to cure exceeds the added value✓ Correct
CFresh paint needed to update the exterior
DBroken gutters that can be inexpensively repaired
Explanation
Incurable depreciation is where the cost to cure the deficiency exceeds the value it would add. A poor floor plan that cannot be economically redesigned is a classic example of incurable functional obsolescence.
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Key Terms to Know
Depreciation
A reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Math Concepts
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