IAAO 102 PRACTICE EXAMS ANSWERS AND
QUESTIONS SET A+
✔✔The first step in reconstructing the income and expense statement is to determine
the________? - ✔✔PGI. Potential Gross Income
✔✔Salaries, management and utilities are considered a _________expense in the
reconstructed operating expense statement? - ✔✔Proper
✔✔Expense amounts for short lived items such as carpet, drapes and water heaters are
handled as ________? - ✔✔Reserves for replacements
✔✔When constructing an income/expense statement, depreciation and debt service
would be considered and _______ expense? - ✔✔Improper
✔✔The income remaining after developing effective gross income and allowing for
operating expenses and reserves for replacement is known as _______? - ✔✔Net
operating income
✔✔What takes the form of either free rent or extra tenant improvement allowances? -
✔✔Rent consessions
✔✔What tends to be less than simple fee value because leases are typically set at
market level when written, but usually fall below market levels as time passes? -
✔✔Leased fee value
✔✔What class of buildings are generally a little older but still have good quality
management and tenants? - ✔✔B
✔✔What type of rent is used as a common denominator to compare leases with
different provisions? This rent is the lease base rent less concessions. - ✔✔Effective
, ✔✔The formula to calculate operating expense ratio OER? - ✔✔Total expenses divided
by effective gross income.
Expenses/EGI
✔✔What are the five methods of developing and overall cap rate (Ro) - ✔✔Derivation
from comparable sales (IRV)
Band of Investments (Mortgage and Equity
Band of Investment ( Land and Improvements/Building)
Net Income Ratio (NOI)
Debt coverage ratio (DCR)
✔✔The summation method of estimating an overall yield rate (Yo) property discount
rate is a theoretical method which is based upon the sum of four components that affect
the return on or requirements of an investment. The four components are? - ✔✔Safe
rate
Risk rate
Non liquidity rate
Management rate
✔✔Another name for the mortgage capitalization rate (Rm) is the ______? -
✔✔Mortgage annual constant
✔✔When developing the overall cap rate from market comparisons, three critical items
which must be highly comparable between comparable sales and the subject property
are: - ✔✔Land to improve ratio
Operating expense ratio
Remaining economic life
✔✔The capitalization rate method most often used by lending institutions is the
_________ method? - ✔✔Debt coverage ratio
✔✔What is the percentage that annual real estate taxes are in relation to total property
value? - ✔✔Effective tax rate
✔✔What are the two methods in developing an effective tax rate? - ✔✔EAT formula
Market comparison
✔✔The net income ratio method can be used to develop an overall cap rate when the
net income is divided by the ________? - ✔✔Effective gross income multiplier
✔✔What are the three components of the overall cap rate? - ✔✔Overall Yield rate
Recap rate
Effective tax rate
QUESTIONS SET A+
✔✔The first step in reconstructing the income and expense statement is to determine
the________? - ✔✔PGI. Potential Gross Income
✔✔Salaries, management and utilities are considered a _________expense in the
reconstructed operating expense statement? - ✔✔Proper
✔✔Expense amounts for short lived items such as carpet, drapes and water heaters are
handled as ________? - ✔✔Reserves for replacements
✔✔When constructing an income/expense statement, depreciation and debt service
would be considered and _______ expense? - ✔✔Improper
✔✔The income remaining after developing effective gross income and allowing for
operating expenses and reserves for replacement is known as _______? - ✔✔Net
operating income
✔✔What takes the form of either free rent or extra tenant improvement allowances? -
✔✔Rent consessions
✔✔What tends to be less than simple fee value because leases are typically set at
market level when written, but usually fall below market levels as time passes? -
✔✔Leased fee value
✔✔What class of buildings are generally a little older but still have good quality
management and tenants? - ✔✔B
✔✔What type of rent is used as a common denominator to compare leases with
different provisions? This rent is the lease base rent less concessions. - ✔✔Effective
, ✔✔The formula to calculate operating expense ratio OER? - ✔✔Total expenses divided
by effective gross income.
Expenses/EGI
✔✔What are the five methods of developing and overall cap rate (Ro) - ✔✔Derivation
from comparable sales (IRV)
Band of Investments (Mortgage and Equity
Band of Investment ( Land and Improvements/Building)
Net Income Ratio (NOI)
Debt coverage ratio (DCR)
✔✔The summation method of estimating an overall yield rate (Yo) property discount
rate is a theoretical method which is based upon the sum of four components that affect
the return on or requirements of an investment. The four components are? - ✔✔Safe
rate
Risk rate
Non liquidity rate
Management rate
✔✔Another name for the mortgage capitalization rate (Rm) is the ______? -
✔✔Mortgage annual constant
✔✔When developing the overall cap rate from market comparisons, three critical items
which must be highly comparable between comparable sales and the subject property
are: - ✔✔Land to improve ratio
Operating expense ratio
Remaining economic life
✔✔The capitalization rate method most often used by lending institutions is the
_________ method? - ✔✔Debt coverage ratio
✔✔What is the percentage that annual real estate taxes are in relation to total property
value? - ✔✔Effective tax rate
✔✔What are the two methods in developing an effective tax rate? - ✔✔EAT formula
Market comparison
✔✔The net income ratio method can be used to develop an overall cap rate when the
net income is divided by the ________? - ✔✔Effective gross income multiplier
✔✔What are the three components of the overall cap rate? - ✔✔Overall Yield rate
Recap rate
Effective tax rate
