IAAO 102 EXAM STUDY GUIDE 2026
QUESTIONS WITH FULL SOLUTIONS
◉ The underlying economic principle of 3 approaches to value.
Answer: substitution
◉ Market Value is also known as. Answer: value in exchange
◉ Most probable price the property will sell for in an arm's-length
transaction under normal conditions on the open market. Answer:
market value
◉ Higher Cap Rate. Answer: Means Higher Risk and Lower Overall
Value
◉ Lower Cap Rate. Answer: Means Lower Rise and Higher Overall
Value
◉ Return of investment aka. Answer: Recapture Rate (or getting
back the amount invested)
◉ Return on Investment. Answer: Overall Yield Rate (or discount
rate; profit realized in addition to getting back the amount invested)
,◉ The nine factors influencing the decisions of investors. Answer:
Safety, Liquidity, Collateral, Time, Size, Management, Appreciation,
Income Tax Advantages, Leverage.
◉ Time to convert to actual dollars. Answer: Liquidity
◉ Collateral. Answer: The entire investment in a savings account can
be used as collateral for a loan. However, lending institutions
generally will only allow a percentage of the real estates market
value to be used as collateral.
◉ Leverage. Answer: The borrowing of funds in hopes of earnings
greater return than the cost of the borrowed funds.
◉ 3 types of leverage.. Answer: Positive negative neutral
◉ The benefits from borrowing funds exceed the costs of
borrowing.. Answer: Positive leverage
◉ An investment situation in which the cost of borrowed funds is
exactly equal to the yield provided by the investment.. Answer:
Neutral
,◉ occurs when borrowed funds cost more than the income the
funds generate. Answer: Negative leverage
◉ Cash, Trust Deed, Land Contract, Mortgages. Answer: Four types
of real estate financing
◉ Trust Deed. Answer: a legal instrument similar to a mortgage that
transfers the title of a property to a trustee. The borrow conveys the
title to a trustee for the benefit of the lender but retains the right to
use and occupy the property. Used to eliminate the need for a
foreclosure proceeding against the borrower in the event of of a
default.
◉ Land Contract. Answer: aka as contract for deed or installment
sales contract. the purchaser agrees to pay a small down payment
when the contract is signed with the balance is specified amounts
over the term of the contract.
◉ 7 types of mortgages. Answer: First Mortgage, Junior Mortgage
(2nd), Purchase Money Mortgage, Construction Loan Mortgage,
Open End Mortgage, Chattel Mortgage, Package Mortgage.
◉ One of the 3 approaches to value in which the appraiser derives a
value indication by converting anticipated benefits through
ownership of income producing property is the _______________
_________________.. Answer: Income Approach
, ◉ Real estates competes with other investments for the investors
dollar. As an investor analyzes various opportunities what will they
consider (5)?. Answer: Cost (am I giving up something else to do
this), what will i get back, when will i get it back, risk associated with
investment, the return compared to other investments.
◉ The economic principle of ____________ states that value is created
by the expectation of benefits to be derived in the future.. Answer:
anticipation
◉ The economic principle of ______________ stats that the a property's
maximum value tends to be set by the lowest cost or price at which
another property of equivalent utility can be acquired.. Answer:
substitution
◉ Competition is created by the potential for profits. However,
competiton among sellers may lead to ________________, which reduces
prices and profits.. Answer: oversupply
◉ Competition among buyers may lead to _______________________,
which increases prices and profits to sellers.. Answer: shortages
◉ The ________________ rate reflects the return of the investment in the
wasting asset.. Answer: recapture
QUESTIONS WITH FULL SOLUTIONS
◉ The underlying economic principle of 3 approaches to value.
Answer: substitution
◉ Market Value is also known as. Answer: value in exchange
◉ Most probable price the property will sell for in an arm's-length
transaction under normal conditions on the open market. Answer:
market value
◉ Higher Cap Rate. Answer: Means Higher Risk and Lower Overall
Value
◉ Lower Cap Rate. Answer: Means Lower Rise and Higher Overall
Value
◉ Return of investment aka. Answer: Recapture Rate (or getting
back the amount invested)
◉ Return on Investment. Answer: Overall Yield Rate (or discount
rate; profit realized in addition to getting back the amount invested)
,◉ The nine factors influencing the decisions of investors. Answer:
Safety, Liquidity, Collateral, Time, Size, Management, Appreciation,
Income Tax Advantages, Leverage.
◉ Time to convert to actual dollars. Answer: Liquidity
◉ Collateral. Answer: The entire investment in a savings account can
be used as collateral for a loan. However, lending institutions
generally will only allow a percentage of the real estates market
value to be used as collateral.
◉ Leverage. Answer: The borrowing of funds in hopes of earnings
greater return than the cost of the borrowed funds.
◉ 3 types of leverage.. Answer: Positive negative neutral
◉ The benefits from borrowing funds exceed the costs of
borrowing.. Answer: Positive leverage
◉ An investment situation in which the cost of borrowed funds is
exactly equal to the yield provided by the investment.. Answer:
Neutral
,◉ occurs when borrowed funds cost more than the income the
funds generate. Answer: Negative leverage
◉ Cash, Trust Deed, Land Contract, Mortgages. Answer: Four types
of real estate financing
◉ Trust Deed. Answer: a legal instrument similar to a mortgage that
transfers the title of a property to a trustee. The borrow conveys the
title to a trustee for the benefit of the lender but retains the right to
use and occupy the property. Used to eliminate the need for a
foreclosure proceeding against the borrower in the event of of a
default.
◉ Land Contract. Answer: aka as contract for deed or installment
sales contract. the purchaser agrees to pay a small down payment
when the contract is signed with the balance is specified amounts
over the term of the contract.
◉ 7 types of mortgages. Answer: First Mortgage, Junior Mortgage
(2nd), Purchase Money Mortgage, Construction Loan Mortgage,
Open End Mortgage, Chattel Mortgage, Package Mortgage.
◉ One of the 3 approaches to value in which the appraiser derives a
value indication by converting anticipated benefits through
ownership of income producing property is the _______________
_________________.. Answer: Income Approach
, ◉ Real estates competes with other investments for the investors
dollar. As an investor analyzes various opportunities what will they
consider (5)?. Answer: Cost (am I giving up something else to do
this), what will i get back, when will i get it back, risk associated with
investment, the return compared to other investments.
◉ The economic principle of ____________ states that value is created
by the expectation of benefits to be derived in the future.. Answer:
anticipation
◉ The economic principle of ______________ stats that the a property's
maximum value tends to be set by the lowest cost or price at which
another property of equivalent utility can be acquired.. Answer:
substitution
◉ Competition is created by the potential for profits. However,
competiton among sellers may lead to ________________, which reduces
prices and profits.. Answer: oversupply
◉ Competition among buyers may lead to _______________________,
which increases prices and profits to sellers.. Answer: shortages
◉ The ________________ rate reflects the return of the investment in the
wasting asset.. Answer: recapture
