IAAO COURSE 101 – FUNDAMENTALS OF REAL PROPERTY
APPRAISAL EXAM QUESTIONS AND CORRECT ANSWERS
(VERIFIED ANSWERS) PLUS RATIONALES
2026 Q&A
1. The cost approach is most applicable when
the property is new or has few comparable sales
It’s often used for special-purpose or new construction properties.
2. Depreciation is defined as
a loss in value from any cause
Depreciation can be physical, functional, or economic.
3. Functional obsolescence results from
design or layout deficiencies within the property
For example, outdated floor plans or inadequate features.
4. External obsolescence is caused by
factors outside the property boundary
Such as nearby nuisances or declining neighborhoods.
5. The sales comparison approach relies heavily on
recent sales of comparable properties
Adjustments are made for differences between comparables and
the subject.
6. The unit of comparison in residential property appraisal is
typically
price per square foot
This allows for easier comparison between properties.
,7. The income approach is most applicable to
income-producing properties
Because it values property based on its ability to generate income.
8. Potential gross income is
the total income if the property were fully rented and all rent
collected
Before deducting vacancy and expenses.
9. Effective gross income equals
potential gross income minus vacancy and collection loss
This represents the income actually expected.
10. Net operating income (NOI) equals
effective gross income minus operating expenses
NOI is a key component for capitalization.
11. The capitalization rate (cap rate) is used to
convert income into value
It expresses the investor’s required rate of return.
12. The formula for the income approach is
Value = NOI ÷ Cap Rate
This is the direct capitalization method.
13. The cost approach formula is
Value = Land Value + (Cost New – Depreciation)
It combines site value with depreciated improvement value.
14. Reproduction cost refers to
the cost to create an exact duplicate of the existing structure
While replacement cost refers to constructing a substitute with
similar utility.
, 15. Replacement cost is
the cost to build a new structure with equivalent utility using
modern materials
Often preferred in mass appraisal.
16. Which of the following is a direct cost in construction?
Labor and materials
Indirect costs include architectural fees, permits, and financing.
17. Economic life refers to
the period over which improvements contribute to property
value
It’s usually shorter than physical life.
18. The sales comparison approach is least reliable when
there are few comparable sales available
Without adequate data, adjustments become speculative.
19. A comparable sale requires adjustment if
its features differ materially from the subject property
Adjustments bring the comparable in line with the subject.
20. Adjustments in the sales comparison approach are made to
the sale prices of comparables
To reflect the subject property’s characteristics.
21. When comparable properties sell for less due to inferior
condition, the appraiser should
add an adjustment to the sale price
To make the comparable equivalent to the subject.
APPRAISAL EXAM QUESTIONS AND CORRECT ANSWERS
(VERIFIED ANSWERS) PLUS RATIONALES
2026 Q&A
1. The cost approach is most applicable when
the property is new or has few comparable sales
It’s often used for special-purpose or new construction properties.
2. Depreciation is defined as
a loss in value from any cause
Depreciation can be physical, functional, or economic.
3. Functional obsolescence results from
design or layout deficiencies within the property
For example, outdated floor plans or inadequate features.
4. External obsolescence is caused by
factors outside the property boundary
Such as nearby nuisances or declining neighborhoods.
5. The sales comparison approach relies heavily on
recent sales of comparable properties
Adjustments are made for differences between comparables and
the subject.
6. The unit of comparison in residential property appraisal is
typically
price per square foot
This allows for easier comparison between properties.
,7. The income approach is most applicable to
income-producing properties
Because it values property based on its ability to generate income.
8. Potential gross income is
the total income if the property were fully rented and all rent
collected
Before deducting vacancy and expenses.
9. Effective gross income equals
potential gross income minus vacancy and collection loss
This represents the income actually expected.
10. Net operating income (NOI) equals
effective gross income minus operating expenses
NOI is a key component for capitalization.
11. The capitalization rate (cap rate) is used to
convert income into value
It expresses the investor’s required rate of return.
12. The formula for the income approach is
Value = NOI ÷ Cap Rate
This is the direct capitalization method.
13. The cost approach formula is
Value = Land Value + (Cost New – Depreciation)
It combines site value with depreciated improvement value.
14. Reproduction cost refers to
the cost to create an exact duplicate of the existing structure
While replacement cost refers to constructing a substitute with
similar utility.
, 15. Replacement cost is
the cost to build a new structure with equivalent utility using
modern materials
Often preferred in mass appraisal.
16. Which of the following is a direct cost in construction?
Labor and materials
Indirect costs include architectural fees, permits, and financing.
17. Economic life refers to
the period over which improvements contribute to property
value
It’s usually shorter than physical life.
18. The sales comparison approach is least reliable when
there are few comparable sales available
Without adequate data, adjustments become speculative.
19. A comparable sale requires adjustment if
its features differ materially from the subject property
Adjustments bring the comparable in line with the subject.
20. Adjustments in the sales comparison approach are made to
the sale prices of comparables
To reflect the subject property’s characteristics.
21. When comparable properties sell for less due to inferior
condition, the appraiser should
add an adjustment to the sale price
To make the comparable equivalent to the subject.
