Certified Residential Appraiser Practice Exam

How is an incurable deficiency calculated?

1. Cost to Install New - Loss in Value

2. Loss in Value + Cost of Repairs

3. Loss in Value - Cost if Installed New

4. Cost of Repairs + Cost to Replace

The correct answer is: Loss in Value - Cost if Installed New

An incurable deficiency is a type of physical depreciation that is not economically feasible to fix. The calculation for determining the value of an incurable deficiency typically involves assessing the overall loss in property value that is attributable to the deficiency and how that loss contrasts with the potential cost of replacing or repairing the deficit. In this case, the calculation is based on the loss in value experienced due to the deficiency minus what it would cost to install or repair the feature if it were done new. This approach allows appraisers to quantify the financial impact of being unable to rectify the deficiency. By subtracting the installation or repair costs from the total loss in value, the appraiser can determine the remaining impact on the property’s marketability and overall worth. This method is critical for appraisers as it provides a clearer understanding of the deficiency's effect relative to the economic viability of fixing it. This calculation ultimately aids in establishing a more accurate property valuation and informs potential buyers or investors about the economic implications of incurring such a deficiency.