IAAO 300 TEST PAPER 2 2025/2026 QUESTIONS AND
SOLUTIONS GRADED A+ TIP
✔✔Multiplicative Model Structure - ✔✔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 - ✔✔Combines both additive and multiplicative
model structures
✔✔Finding Net Operating Income (NOI) - ✔✔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, =
$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 - ✔✔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 - ✔✔Net operating income (NOI) divided by the market
value (sale price) of the property.
✔✔IRV Formula - ✔✔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) - ✔✔Market rent at 100% occupied. Also known as PGI.
✔✔Gross Income Multiplier (GIM) - ✔✔Sale price divided by gross income.
✔✔Capitalization by using Gross Income Multiplier - ✔✔Gross income times gross
income multiplier equals market value
GI x GIM = V
✔✔Expense Ratio - ✔✔Expresses expenses as a percentage of effective gross income
✔✔Steps in the Cost Approach - ✔✔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 - ✔✔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 - ✔✔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 - ✔✔Data is entered into a holding file where it's tested for errors
and cleaned before updating the database
✔✔Online Data Entry - ✔✔Data is entered directly into the database, so edits (stops)
are in place to protect the system
✔✔Hard Edit or Stop - ✔✔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.
SOLUTIONS GRADED A+ TIP
✔✔Multiplicative Model Structure - ✔✔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 - ✔✔Combines both additive and multiplicative
model structures
✔✔Finding Net Operating Income (NOI) - ✔✔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, =
$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 - ✔✔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 - ✔✔Net operating income (NOI) divided by the market
value (sale price) of the property.
✔✔IRV Formula - ✔✔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) - ✔✔Market rent at 100% occupied. Also known as PGI.
✔✔Gross Income Multiplier (GIM) - ✔✔Sale price divided by gross income.
✔✔Capitalization by using Gross Income Multiplier - ✔✔Gross income times gross
income multiplier equals market value
GI x GIM = V
✔✔Expense Ratio - ✔✔Expresses expenses as a percentage of effective gross income
✔✔Steps in the Cost Approach - ✔✔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 - ✔✔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 - ✔✔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 - ✔✔Data is entered into a holding file where it's tested for errors
and cleaned before updating the database
✔✔Online Data Entry - ✔✔Data is entered directly into the database, so edits (stops)
are in place to protect the system
✔✔Hard Edit or Stop - ✔✔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.
