Certified Residential Appraiser Practice Exam

What type of expenses generally do not vary with occupancy?

1. Variable Expenses

2. Income Rate

3. Fixed Expenses

4. Overall Yield Rate

The correct answer is: Fixed Expenses

Fixed expenses are costs that do not change based on the level of occupancy of a property. These expenses remain constant regardless of how much of the property is rented or occupied. Common examples of fixed expenses include property taxes, property insurance, and mortgage payments. These expenses are contracted amounts that must be paid at certain intervals, such as monthly or annually, and do not fluctuate with occupancy levels. For instance, regardless of whether a building is occupied by tenants or is completely vacant, the owner is still responsible for paying property taxes and insurance. This characteristic distinguishes fixed expenses from variable expenses, which do change based on occupancy levels, such as utilities or maintenance costs that may rise with increased usage or demand. Understanding the nature of fixed expenses is crucial for residential appraisers, as they need to accurately assess property financial performance and sustainability, particularly in investment analysis and valuation contexts.