IAAO 112 QUESTIONS AND ANSWERS WITH SOLUTIONS 2025
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Course
IAAO 201
Institution
IAAO 201
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 st...
IAAO 112 QUESTIONS AND ANSWERS
WITH SOLUTIONS 2025
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.
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.
Market value - ANSWER The most probable price which a property should bring in a competitive, 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.
Components of real property rights - ANSWER Ownership entity, financial interest, legal estate (fee
simple, leased fee, leasehold)
Investment questions - ANSWER How much will it cost, how much will I get back (Ro), when will I get it
back, what are the risks, what is the return of a real estate investment compared to other investments
with similar risks.
Return ON investments - ANSWER Also called:
Minimum base rent - ANSWER The fixed portion of the rent under the terms of a percentage lease
Overage rent - ANSWER Percentage rent paid over and above the guaranteed minimum rate
Excess rent - ANSWER Amount of which contract exceeds market rent at the time of the appraisal
Positive leveraging - ANSWER The borrowing of funds in hopes of earning a greater return than the cost
of the borrowed funds
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