IAAO 102 EXAM ACTUAL EXAM 200 QUESTIONS AND CORRECT
DETAILED ANSWERS|AGRADE
Components of Capitalization Process - ANSWER: Value, Net Operating Income, and
Capitalization Rate
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
What are the nine factors influencing investor decisions - ANSWER: Appreciation,
COLLATERAL, LEVERAGE, LIQUIDITY, income, management, safety, size, time.
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