California Real Estate Practice Exam

When considering depreciation, the concept of whether an item of physical deterioration is curable or incurable is a function of?

1. Its age

2. Its cost relative to the value it adds

3. The current market conditions

4. The skill of the appraiser

The correct answer is: Its cost relative to the value it adds

Depreciation is the decrease in value of an item over time, and it can be caused by physical deterioration. A crucial factor in determining whether an item's physical deterioration is curable or incurable is considering the cost relative to the value it adds. This means that if the cost of repairing the deterioration is higher than the value the item adds, it is considered incurable. On the other hand, if the cost is lower than the value it adds, it is considered curable. Option A, its age, is not a direct factor in determining the curability of physical deterioration. Option C, current market conditions, may play a role in determining the cost of repairs but is not the sole consideration. Option D, the skill of the appraiser, is not related to the concept of curability. Therefore, the correct answer is option B.