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IAAO 112 EXAM STUDY GUIDE
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IAAO 112 EXAM STUDY GUIDE
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IAAO 112EXAM STUDY
GUIDE
Potential Gross Income - answer- Annual gross income
Market rent - answer- The rental income a property would most probably command in
the open market
Balance - answer- The principle that real property value is created and sustained when
contrasting, opposing, or interacting elements are in a state of equilibrium. (Value is
maximized when the 4 agents of production are in their proper allocation.)
Conformity - answer- States that overall,the prices of an area will be maximized if
structures are conforming
Progression - answer- (Under conformity) Is the concept that the value of an inferior
property is enhanced by its association with better properties.
Highest and best use - answer- That use which will generate the highest net return to
the property over a reasonable period of time
Characteristics of real property investment analysis - answer- Return on and of
investment, tax considerations, liquidity, leverage, degree of required management, risk
Competition among sellers - answer- Over-supply
Competition among buyers - answer- Shortage
Chattel - answer- Mortgage on personal property
, Wraparound - answer- Junior to, but includes any existing mortgage on the property.
10 years - answer- Long term lease period
Sandwich - answer- A lease in which an intermediate leaseholder is the lessee of one
party and the lessor of another
Opportunity cost - answer- Cost of options foregone or opportunities not chosen
Leasehold - answer- Tenant paying less than market rent
Legally permissible - answer- (H and B Use tenant) Setbacks, easements, and story-
height
Regression - answer- (Under conformity) Is the concept that the value of a superior
property is adversely affected by its association with an inferior property of the same
type.
Opportunity cost - answer- The cost of options foregone or opportunities not chosen.
The selection of an investment means an alternative was not selected.
Substitution - answer- The appraisal principle that states when several similar or
alternative commodities, goods, or services are available, the one with the lowest price
will attract the greatest demand
H&BU fact - answer- As long as the value of the property "as improved" is greater than
the value of the site "as vacant"; the highest and best use is usually the current use. If
the highest and best use of the site as improved is not the same as the highest and best
use as though vacant, the highest and best use as improved is referenced to as the
highest and best 'interim' or 'transitional' use of the property.
4 tests of highest and best use - answer- Physically possible, legally permitted,
financially feasible, maximally productive.
Physically possible - answer- (Under 4 tests of h&bu). Topography, soil conditions,
subsurface water, land area, land shape.
Legally permitted - answer- (Under 4 tests of h&bu): setbacks, subdivision restrictions,
easements, building heights, area allowed to be occupied by structures, density, the
above are subject to change making judgments difficult.
Financially feasible - answer- (Under 4 tests of h&bu): rents, expenses, absorption
rates, construction costs, discount rates, profit levels (models should be made for each
use to estimate the residual land value, after considering the costs to construct the ideal
improvement.
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