Exam (elaborations)
IAAO 102 Questions and Correct Answer
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Exam of 38 pages for the course IAAO 102 at IAAO 102
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Elscores 8/18/2024 11:49:07 PMIAAO 102 Questions and Correct
Answer
Components of Capitalization Process
~: Value, Net Operating Income, and Capitalization Rate
The underlying economic principle of 3 approaches to value
~: substitution
Market Value is also known as
~: value in exchange
Most probable price the property will sell for in an arm's-length transaction under normal
conditions on the open market
~: market value
Higher Cap Rate
~: Means Higher Risk and Lower Overall Value
Lower Cap Rate
~: Means Lower Rise and Higher Overall Value
Return of investment aka
, Elscores 8/18/2024 11:49:07 PM
~: Recapture Rate (or getting back the amount invested)
Return on Investment
~: Overall Yield Rate (or discount rate; profit realized in addition to getting back the amount
invested)
The nine factors influencing the decisions of investors
~: Safety, Liquidity, Collateral, Time, Size, Management, Appreciation, Income Tax Advantages,
Leverage.
Time to convert to actual dollars
~: Liquidity
Collateral
~: 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
~: The borrowing of funds in hopes of earnings greater return than the cost of the borrowed
funds.
3 types of leverage.
~: Positive negative neutral
The benefits from borrowing funds exceed the costs of borrowing.
, Elscores 8/18/2024 11:49:07 PM
~: Positive leverage
An investment situation in which the cost of borrowed funds is exactly equal to the yield
provided by the investment.
~: Neutral
occurs when borrowed funds cost more than the income the funds generate
~: Negative leverage
Cash, Trust Deed, Land Contract, Mortgages
~: Four types of real estate financing
Trust Deed
~: 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
~: 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
~: First Mortgage, Junior Mortgage (2nd), Purchase Money Mortgage, Construction Loan
Mortgage, Open End Mortgage, Chattel Mortgage, Package Mortgage.
, Elscores 8/18/2024 11:49:07 PM
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
_______________ _________________.
~: Income Approach
Real estates competes with other investments for the investors dollar. As an investor analyzes
various opportunities what will they consider (5)?
~: 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.
~: 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.
~: substitution
Competition is created by the potential for profits. However, competiton among sellers may
lead to ________________, which reduces prices and profits.
~: oversupply
Competition among buyers may lead to _______________________, which increases prices
and profits to sellers.
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