IAAO Course 101 – Fundamentals of Real Property
Appraisal Exam Questions And Correct Answers
(Verified Answers) Plus Rationales 2026 Q&A |
Instant Download Pdf
1. The primary purpose of property appraisal is to
estimate the market value of property
It provides a basis for equitable property taxation.
2. The three approaches to value are
Cost, Sales Comparison, and Income
These approaches represent the main valuation techniques used
by assessors.
3. Market value is best defined as
the most probable price a property would bring in a competitive
and open market
This definition assumes knowledgeable buyers and sellers acting
without undue pressure.
4. The principle of substitution states that
a buyer will not pay more for a property than the cost of
acquiring an equally desirable substitute
This principle underlies all three approaches to value.
5. The highest and best use of a property is
the reasonably probable use that results in the highest value
It considers legal, physical, and financial feasibility.
,6. Which of the following is NOT a characteristic of value?
Scarcity, Utility, Transferability, or Obsolescence
Obsolescence
Obsolescence reduces value rather than being a characteristic of
it.
7. The cost approach is most applicable when
the property is new or has few comparable sales
It’s often used for special-purpose or new construction properties.
8. Depreciation is defined as
a loss in value from any cause
Depreciation can be physical, functional, or economic.
9. Functional obsolescence results from
design or layout deficiencies within the property
For example, outdated floor plans or inadequate features.
10. External obsolescence is caused by
factors outside the property boundary
Such as nearby nuisances or declining neighborhoods.
11. The sales comparison approach relies heavily on
recent sales of comparable properties
Adjustments are made for differences between comparables and
the subject.
12. The unit of comparison in residential property appraisal is
typically
price per square foot
This allows for easier comparison between properties.
, 13. The income approach is most applicable to
income-producing properties
Because it values property based on its ability to generate income.
14. Potential gross income is
the total income if the property were fully rented and all rent
collected
Before deducting vacancy and expenses.
15. Effective gross income equals
potential gross income minus vacancy and collection loss
This represents the income actually expected.
16. Net operating income (NOI) equals
effective gross income minus operating expenses
NOI is a key component for capitalization.
17. The capitalization rate (cap rate) is used to
convert income into value
It expresses the investor’s required rate of return.
18. The formula for the income approach is
Value = NOI ÷ Cap Rate
This is the direct capitalization method.
19. The cost approach formula is
Value = Land Value + (Cost New – Depreciation)
It combines site value with depreciated improvement value.
20. Reproduction cost refers to
the cost to create an exact duplicate of the existing structure
While replacement cost refers to constructing a substitute with
similar utility.
Appraisal Exam Questions And Correct Answers
(Verified Answers) Plus Rationales 2026 Q&A |
Instant Download Pdf
1. The primary purpose of property appraisal is to
estimate the market value of property
It provides a basis for equitable property taxation.
2. The three approaches to value are
Cost, Sales Comparison, and Income
These approaches represent the main valuation techniques used
by assessors.
3. Market value is best defined as
the most probable price a property would bring in a competitive
and open market
This definition assumes knowledgeable buyers and sellers acting
without undue pressure.
4. The principle of substitution states that
a buyer will not pay more for a property than the cost of
acquiring an equally desirable substitute
This principle underlies all three approaches to value.
5. The highest and best use of a property is
the reasonably probable use that results in the highest value
It considers legal, physical, and financial feasibility.
,6. Which of the following is NOT a characteristic of value?
Scarcity, Utility, Transferability, or Obsolescence
Obsolescence
Obsolescence reduces value rather than being a characteristic of
it.
7. The cost approach is most applicable when
the property is new or has few comparable sales
It’s often used for special-purpose or new construction properties.
8. Depreciation is defined as
a loss in value from any cause
Depreciation can be physical, functional, or economic.
9. Functional obsolescence results from
design or layout deficiencies within the property
For example, outdated floor plans or inadequate features.
10. External obsolescence is caused by
factors outside the property boundary
Such as nearby nuisances or declining neighborhoods.
11. The sales comparison approach relies heavily on
recent sales of comparable properties
Adjustments are made for differences between comparables and
the subject.
12. The unit of comparison in residential property appraisal is
typically
price per square foot
This allows for easier comparison between properties.
, 13. The income approach is most applicable to
income-producing properties
Because it values property based on its ability to generate income.
14. Potential gross income is
the total income if the property were fully rented and all rent
collected
Before deducting vacancy and expenses.
15. Effective gross income equals
potential gross income minus vacancy and collection loss
This represents the income actually expected.
16. Net operating income (NOI) equals
effective gross income minus operating expenses
NOI is a key component for capitalization.
17. The capitalization rate (cap rate) is used to
convert income into value
It expresses the investor’s required rate of return.
18. The formula for the income approach is
Value = NOI ÷ Cap Rate
This is the direct capitalization method.
19. The cost approach formula is
Value = Land Value + (Cost New – Depreciation)
It combines site value with depreciated improvement value.
20. Reproduction cost refers to
the cost to create an exact duplicate of the existing structure
While replacement cost refers to constructing a substitute with
similar utility.
