IAAO 102 FINAL PAPER 2026 QUESTIONS AND
ANSWERS VERIFIED
◉ Principle of Change. Answer: Investors expectation of changes in
income levels, the expenses required to ensure income and probable
increases or decreases in property must be addressed and forecast.
◉ Principle of Competition. Answer: Competition means that an
excess of one type of facility will decrease the value of all such
facilities. Excess competition destroys balance. Competition is
created by the potential for profits, which attracts new buyers and
sellers to a market. Competition between buyers may lead to
shortages, which increases prices and profits to sellers.
◉ Principle of Substitution. Answer: The prices, rents, and rates of
return of property tend to be set by the current prices, rents and
rates of return for equally desirable substitute properties. The
principle of substitution is market oriented and provides the basis
for estimating rents and expenses and selecting the proper discount
rate or capitalization rate for the subject property.
◉ Balance. Answer: A suitable balance among types and locations of
income producing properties affects value; and imbalance in use
may result in declining value.
,◉ Principle of Contribution. Answer: The value of a component of
real estate can be measured by the amount it contributes to net
operating income (NOI) because NOI can be capitalized into value.
◉ Supply. Answer: The amount of product that producers are willing
to sell under various conditions during a given period.
◉ Demand. Answer: The amount of product buyers are willing and
able to buy during some period, given the choices available to them.
◉ Market Value. Answer: The most probable price which a property
should bring in a competitive and open market under all conditions
requisite to a fair sale, the buyer and seller each acting prudently
and knowledgeably and assuming the price is not affected by undue
stimulus. Implicit in this definition are the consummation of a sale
as of a specified date and the passing of title from seller to buyer.
◉ Investment Value. Answer: The worth of an investment property
to a particular investor. Investment value may or may not coincide
with market value depending on requirements of the specified
investor.
◉ Real Estate Competes. Answer: Real estate competes with other
investments for the investors dollars.
, ◉ Fix Dollar Investments. Answer: Real estate fixed dollar
investments - not much risk and very little gain. Example: savings
account.
◉ Growth Investments. Answer: Growth investments have more risk
associated with them, but offer greater opportunity for growth.
Examples: real estate and stocks.
◉ Return ON Investment. Answer: All investors want a return ON
their investment (overall yield or discount rate).
◉ Return OF Investment. Answer: All investors want a return OF
their investment: recapture rate.
◉ Factors Including Investors. Answer: Factors influencing investor
bahavior. The 9 factors are: safety, liquidity, size, collateral, time,
management, appreciation, income tax, and leverage.
◉ Trust Deed. Answer: Trust Deed (Deed of Trust) A legal
instrument similar to a mortgage that transfers the title of a
property to a trustee. The borrower conveys the title to a trustee for
the benefit of the lender, but remains the right to use and occupy the
property. Trust deeds are used to eliminate the need for a
foreclosure proceeding against the borrower in the event of default.
ANSWERS VERIFIED
◉ Principle of Change. Answer: Investors expectation of changes in
income levels, the expenses required to ensure income and probable
increases or decreases in property must be addressed and forecast.
◉ Principle of Competition. Answer: Competition means that an
excess of one type of facility will decrease the value of all such
facilities. Excess competition destroys balance. Competition is
created by the potential for profits, which attracts new buyers and
sellers to a market. Competition between buyers may lead to
shortages, which increases prices and profits to sellers.
◉ Principle of Substitution. Answer: The prices, rents, and rates of
return of property tend to be set by the current prices, rents and
rates of return for equally desirable substitute properties. The
principle of substitution is market oriented and provides the basis
for estimating rents and expenses and selecting the proper discount
rate or capitalization rate for the subject property.
◉ Balance. Answer: A suitable balance among types and locations of
income producing properties affects value; and imbalance in use
may result in declining value.
,◉ Principle of Contribution. Answer: The value of a component of
real estate can be measured by the amount it contributes to net
operating income (NOI) because NOI can be capitalized into value.
◉ Supply. Answer: The amount of product that producers are willing
to sell under various conditions during a given period.
◉ Demand. Answer: The amount of product buyers are willing and
able to buy during some period, given the choices available to them.
◉ Market Value. Answer: The most probable price which a property
should bring in a competitive and open market under all conditions
requisite to a fair sale, the buyer and seller each acting prudently
and knowledgeably and assuming the price is not affected by undue
stimulus. Implicit in this definition are the consummation of a sale
as of a specified date and the passing of title from seller to buyer.
◉ Investment Value. Answer: The worth of an investment property
to a particular investor. Investment value may or may not coincide
with market value depending on requirements of the specified
investor.
◉ Real Estate Competes. Answer: Real estate competes with other
investments for the investors dollars.
, ◉ Fix Dollar Investments. Answer: Real estate fixed dollar
investments - not much risk and very little gain. Example: savings
account.
◉ Growth Investments. Answer: Growth investments have more risk
associated with them, but offer greater opportunity for growth.
Examples: real estate and stocks.
◉ Return ON Investment. Answer: All investors want a return ON
their investment (overall yield or discount rate).
◉ Return OF Investment. Answer: All investors want a return OF
their investment: recapture rate.
◉ Factors Including Investors. Answer: Factors influencing investor
bahavior. The 9 factors are: safety, liquidity, size, collateral, time,
management, appreciation, income tax, and leverage.
◉ Trust Deed. Answer: Trust Deed (Deed of Trust) A legal
instrument similar to a mortgage that transfers the title of a
property to a trustee. The borrower conveys the title to a trustee for
the benefit of the lender, but remains the right to use and occupy the
property. Trust deeds are used to eliminate the need for a
foreclosure proceeding against the borrower in the event of default.
