IAAO 2023 Course 300 Exam with Complete Solutions

Scope of Work Rule - ANSWER-1. Identify the problem to be solved 2. Determine and perform the scope of work necessary to develop credible assignment results 3. Disclose the scope of work in the report Scope of work acceptability - ANSWER-When it meets or exceeds: 1. Expectations of parties who are regularly intended users for similar assignments and 2. What an Appraiser's peers actions would be in performing the same or similar assignments Economic Basis of Model Building - ANSWER-Supply factors relate to availability and thus reflect such things as Cost, interest rates, and economic conditions. Demand factors include characteristics to buyers, such as construction quality, condition, and location. Basic Cost Model Structure - ANSWER-MV = LV + BV Basic Sales Comparison Basic Model Structure - ANSWER-MVs = Sc + ADJc Basic Income Models - ANSWER-1. NOI Model MV = NOI / OAR 2. GI Model MV = GI x GIM Model Development - ANSWER-1. Specification 2. Calibration 3. Quality Assurance Specification - ANSWER-What data to include in the model and in what format 1. Additive 2. Multiplicative 3. Hybrid (generic) Additive Model Structure - ANSWER-Each of the variables are independent from the other variables. A change in one variable does not directly impact any other variables MV = ($/sqft x sqft) + ($/plumbing fixture x #fixtures) + ($/car stall x #/cars) + ... Multiplicative Model Structure - ANSWER-Each of the variables are interdependent. Any change to one variable will have an impact on all of the other variables. Hybrid (generic) Model Structure - ANSWER-Combines both additive and multiplicative model structures Finding Net Operating Income (NOI) - ANSWER-1. Potential Gross Income (PGI) 100% occupancy at market rent (market rent is the prevailing rent in the open market, not the rent called for in a lease) 2. Minus Vacancy and Collection Loss (V&C) - any money lost from units not being rented or from people not paying rent 3. Plus Miscellaneous Income (Misc Inc) - income from secondary sources, such as clubhouse rentals, health club memberships, storage rentals, and vending or laundry machines 4. Equals Effective Gross Income (EGI) - this 100% of the actual money made by the real property operation. 5. Minus Allowable Expenses and Reserves (Exp & Res) - expenses that have to do with the operation of the real estate and not the business. Reserves are items that will wear out before the bone structure, such as carpet, roof, air conditioners, etc. Reserves are expensed on a prorated basis (ie. Carpet lasts 5 years so if it costs $2,000 / 5 = $400 allowable deduction per year) 6. Equals Net Operating Income (NOI) - the income remaining after expenses and reserves. This is the "I" in the IRV formula Capitalization Rate - ANSWER-The term capitalization means to convert income into an estimate of value. A capitalization rate is used in converting net income (NOI) into an estimate of value. Direct Capitalization Rate - ANSWER-Net operating income (NOI) divided by the market value (sale price) of the property. IRV Formula - ANSWER-The equation to find value from net operating income and a capitalization rate. 1. I / R = V 2. I / V = R 3. R x V = I Gross Income (GI) - ANSWER-Market rent at 100% occupied. Also known as PGI. Gross Income Multiplier (GIM) - ANSWER-Sale price divided by gross income. Capitalization by using Gross Income Multiplier - ANSWER-Gross income times gross income multiplier equals market value GI x GIM = V Expense Ratio - ANSWER-Expresses expenses as a percentage of effective gross income Steps in the Cost Approach - ANSWER-1. Estimate the value of the land as if vacant and available to be developed to its highest and best use 2. Estimate cost new (RCN) 3. Estimate accrued depreciation - the loss in value from any and all causes 4. Subtract depreciation from RCN 5. Add in the land value Accrued Depreciation - ANSWER-The difference between the market value of an improvement and its RCN. 1. Sale price - Market value of land = market value of the improvements (building) 2. RCN - market value of the improvements (buildings) = $ depreciation 3. $ depreciation / RCN = % of depreciation Comparative Unit - ANSWER-Cost estimation made by a cost per square foot multiplied by the square footage of the improvement. Refinements are made for variations to the base cost amount. Batch Data Entry - ANSWER-Data is entered into a holding file where it's tested for errors and cleaned before updating the database Online Data Entry - ANSWER-Data is entered directly into the database, so edits (stops) are in place to protect the system Hard Edit or Stop - ANSWER-When the system settings preclude (stop) the data from being entered. Can be for incorrect data being entered or for a lack of security clearance for a particular area of the program. Soft Edit or Stop - ANSWER-The system provides a warning to the entry questioning if it is intended or not. (If you try and exit a Word document without saving it, a warning pops up to ask if you want to proceed, because if you do, everything will be lost. It will allow you to exit, but the data is then lost) Measure of Central Tendency - ANSWER-A measure of central tendency is a representation of the group being studied. In Course 300 the following measures are utilized: 1. Median 2. Mean 3. Weighted Mean Median - ANSWER-The median is the midpoint in an array. The formula for finding the location (rank) of the median is (n+1) / 2: where "n" is the number of observations in the group being analyzed With an odd number of observations the median will be an existing number in the array. 15 + 1 = 16 / 2 = 8 So the 8th number down in the array is the median With an even number of observations the median will fall half way between two observations in the array. 14 + 1 = 15 / 2 = 7.5 So the median is halfway between the 7th and 8th observations. The median is not significantly impacted by outliers (extreme numbers) 24 25 28 32 33 n + 1 / 2 5 + 1 / 2 = 3 Median = 28 24 25 28 32 33 35 n + 1 / 2 6 + 1 / 2 = 3.5 32 - 28 = 4 4 x .5 = 2 28 + 2 = 30 Median is 30 Mean - ANSWER-The mean is the average of the population. Simply add together all of the observations and divide by "n". 1 + 2 + 3 + 4 + 5 = 15 15 / 5 = 3 The mean is 3 Weighted Mean - ANSWER-The weighted mean is used in ratio studies. It divides the sum of the appraised values by the sum of the sale prices. The ratios of the more expensive properties tend to dominate or sway this measure Standard Deviation - ANSWER-The most common measure of dispersion. Steps: 1. Find the mean 2. Subtract the mean from each observation 3. Square the deviations from the mean 4. Sum the deviations squared 5. Divide by n-1. (Variance) 6. Take square root of variance +- 1 SD from mean = 68% of the population +- 2 SD from mean = 95% of the population +- 3 SD from mean = 99% of the population Coefficient of Variation (COV) - ANSWER-Expresses the standard deviation as a percentage of the mean Divide the standard deviation by the mean x 100 A coefficient of dispersion is approximately 75% of a coefficient of variation. So if an acceptable COD is 15, an acceptable COV would be approximately 20