Whether a loss in value pays for itself to correct
Depreciation is curable when correcting it returns at least what the correction costs, and incurable when it does not. The test is economic rather than technical — almost any defect can be repaired, and the only question is whether the repair earns its own price back. The same defect can therefore be curable in one market and incurable in another.
How the exam asks about it
Physical deterioration and functional obsolescence each split into curable and incurable. External obsolescence never does: its cause sits outside the property line, so nothing the owner spends on the property removes it.
Loss in value from any cause, deducted in the cost approach
Appraisal depreciation is actual loss in value from three sources — physical deterioration, functional obsolescence and external obsolescence. It is a different concept from the depreciation an accountant takes for tax purposes, which is a schedule rather than an observation.
How the exam asks about it
Know all three causes and which are curable. External obsolescence is always incurable from the owner’s side, because its cause is outside the property line.
The period over which improvements still contribute value to the property
It ends when the building stops adding anything to the value of the land, which is normally long before the structure would fall down. Physical life is how long it stands; economic life is how long it earns its place. A sound building on a site whose highest and best use has moved on can have plenty of physical life left and no economic life at all.
Easily confused with
Remaining economic life is what is left of it as at the date of the appraisal, and that is the figure a cost-approach calculation actually consumes.
How the exam asks about it
The cost approach measures depreciation against economic life, not physical life. Items hand you both figures and watch which one you reach for.
The age a property appears to be from its condition rather than from its build date
A building that has been maintained and updated carries an effective age below its actual age; a neglected one carries an effective age above it. Appraisers work in effective age precisely because two properties built in the same year can be in entirely different condition, and only one of those two ages responds to a new roof.
Easily confused with
Actual age is chronological and comes off the records. Effective age is a judgment about condition, and the gap between the two is what an appraiser is being paid for.
How the exam asks about it
The cost-approach shortcut divides effective age by total economic life and applies the fraction to the cost new. Substituting actual age is the error the item is built around.
Value lost through influences outside the property boundary
A new landfill next door, a factory closure that empties the town, a motorway routed alongside. Also called economic obsolescence, and it is always incurable from the owner’s side because nothing they do to their own lot removes the cause.
How the exam asks about it
"Always incurable" is the fact the item is built on, and it follows from where the cause sits.
Value lost through a defect in the property’s own design or utility
Four bedrooms with one bathroom, a bedroom you must walk through to reach another, a dated layout, a ceiling too low for the use. The cause is inside the property, which is why some of it can be cured.
How the exam asks about it
Distinguished from external obsolescence by location of the cause: inside the property line is functional, outside it is external.
Value lost through wear, age and damage to the structure
A worn roof, peeling paint, a failing boiler. Curable where the repair costs no more than the value it restores; incurable where it does not pay for itself, as with a structural frame nearing the end of its life.
How the exam asks about it
The curable test is economic rather than technical. Almost anything can be fixed; the question is whether fixing it returns its cost.
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