Cost to Cure

Definition

The term Cost to Cure refers to the expense involved in rectifying a defect or issue with a property that leads to its depreciation. A defect is considered curable if the cost of fixing it is less than the increase in the property’s value resulting from the correction.

Examples

Roof Replacement:
- Issue: An aging, leaking roof.
- Cost to Cure: $8,000.
- Value Added: $10,000 increase in property value after the roof is replaced.
- Curability: Curable, because the cost to fix ($8,000) is less than the value added ($10,000).
Plumbing Issues:
- Issue: Old plumbing that frequently leaks.
- Cost to Cure: $5,000.
- Value Added: $6,500 increase in property value.
- Curability: Curable, as the cost to fix ($5,000) is less than the value added ($6,500).
Peeling Paint:
- Issue: Exterior paint is faded and peeling.
- Cost to Cure: $3,000.
- Value Added: $4,500 increase in property value.
- Curability: Curable, because the cost to apply new paint ($3,000) is less than the value added ($4,500).

Frequently Asked Questions (FAQs)

What happens if the cost to cure is greater than the value added?

It is classified as incurable. Such defects are often not economically viable to remedy.

How is ‘Cost to Cure’ determined?

A professional real estate appraiser typically calculates it by assessing the nature of the defect, the expense involved in repairing it, and the property’s increased value post-repair.

Are cosmetic improvements considered curable defects?

Yes, as long as the cost to cure these cosmetic issues is less than the resultant value added to the property.

Does ‘Cost to Cure’ apply to all types of real estate?

Yes, the principle applies broadly to residential, commercial, and industrial real estate.

Who usually pays the ‘Cost to Cure’?

Typically, the property owner is responsible, although it can be negotiated during property sales transactions.

Depreciation: The reduction in the value of an asset over time, particularly due to wear and tear.
Appraisal: The process by which the value of a property is determined, usually conducted by a professional.
Incureable Defects: Flaws or issues in a property where the cost to cure exceeds the value added by correcting the defect.
Market Value: The estimated amount for which a property should exchange on the date of the valuation.
Deferred Maintenance: Necessary maintenance, repairs, and replacements that have been postponed, causing deterioration.

Online Resources

References

Appraisal Institute. “The Appraisal of Real Estate,” 14th Edition.
Revisto, Nicholas. “Property Appraisal: Key Concepts and Approaches.”

Suggested Books for Further Studies

“The Appraisal of Real Estate” by Appraisal Institute
“The Dictionary of Real Estate Appraisal” by Appraisal Institute
“Real Estate Investments and How to Make Them” by Milt Tanzer
“Real Estate Principles: A Value Approach” by David C. Ling and Wayne R. Archer

Real Estate Basics: Cost to Cure Fundamentals Quiz

### What does 'Cost to Cure' refer to in real estate? - [ ] The cost of purchasing a new property. - [x] The expense involved in correcting a defect that causes depreciation. - [ ] The price of hiring a property manager. - [ ] Money spent on landscaping. > **Explanation:** The 'Cost to Cure' refers to the amount of money required to fix a defect in a property that leads to its depreciation. ### When is a defect considered 'curable'? - [ ] When the cost to fix it is higher than the value added by the correction. - [x] When the cost to fix it is less than the value added by the correction. - [ ] When it affects the outward appearance of a property. - [ ] When it requires less than $1,000 in repairs. > **Explanation:** A defect is deemed curable if the expense of rectifying it is less than the increase in the property's value resulting from the correction. ### Which professional typically calculates the ‘Cost to Cure’? - [ ] Real estate agents - [ ] Contractors - [x] Real estate appraisers - [ ] Real estate lawyers > **Explanation:** Real estate appraisers usually determine the 'Cost to Cure' by assessing the defect, repair cost, and value increase post-correction. ### An old, leaking roof will cost $7,000 to repair and adds $9,000 to the property value. Is this defect curable? - [x] Yes - [ ] No - [ ] It depends on the market conditions. - [ ] Only in residential properties. > **Explanation:** This defect is curable as the cost to repair ($7,000) is less than the increase in the property’s value ($9,000). ### Are cosmetic improvements in real estate typically included in the 'Cost to Cure'? - [x] Yes - [ ] No - [ ] Only in commercial properties - [ ] Only when selling the property > **Explanation:** Cosmetic improvements are typically considered in 'Cost to Cure' as long as their cost is less than the added value to the property. ### What is principally measured by the 'Cost to Cure' in a real estate appraisal? - [ ] The age of the property. - [x] The expense of correcting a defect. - [ ] The property taxes. - [ ] The rental yield. > **Explanation:** The 'Cost to Cure' primarily measures the expense associated with fixing a defect identified in a real estate appraisal. ### Which is NOT a factor in determining the 'Cost to Cure'? - [ ] Nature of the defect - [ ] Expense of fixing the defect - [x] The original purchase price of the property - [ ] Value increase after the correction > **Explanation:** The original purchase price of the property is not a factor when determining 'Cost to Cure'; the critical factors are the nature of the defect, the fixing expense, and the resulting value increase. ### What term describes defects that are not economically viable to fix? - [x] Incureable Defects - [ ] Depreciable Defects - [ ] Remedial Defects - [ ] Non-curable Defects > **Explanation:** Defects that are not economically sensible to fix due to the higher cost compared to the added value are termed 'Incureable Defects'. ### Who usually bears the 'Cost to Cure'? - [ ] The real estate agent - [ ] The buyer - [x] The property owner - [ ] The mortgage lender > **Explanation:** The property owner generally bears the 'Cost to Cure', though it can sometimes be part of sale negotiations. ### All of the following are considered curable defects EXCEPT: - [ ] Aging plumbing - [ ] Leaking roof - [x] Sinkhole on the land - [ ] Faded exterior paint > **Explanation:** A sinkhole is typically an incurable defect as the cost to remedy it is usually excessive compared to the value it adds to the property.