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IAAO 102 Exam Questions |Already Answered | Graded A+
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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-...

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  • August 11, 2024
  • 22
  • 2024/2025
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IAAO 102 Exam Questions |Already
Answered | Graded A+
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.



______________________ leverage is achieved when funds are invested in property, which has a higher
rate of return than the cost of borrowed funds. - ANSWER-Positive



The four most common methods of financing real estate are? - ANSWER-Cash, Trust Deed, Land
Contract, Mortgages



A mortgage on personal property is called what? - ANSWER-A chattel mortgage.\



A _________________ mortgage is also called a second mortgage - ANSWER-junior

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