Certified Residential Appraiser Practice Exam

Which of the following best describes fixed expenses in real estate?

1. Expenses that change with occupancy rates

2. Expenses incurred regardless of property use

3. Variable costs dependent on services provided

4. Costs that are avoided during low occupancy

The correct answer is: Expenses incurred regardless of property use

Fixed expenses in real estate refer to those costs that remain constant regardless of the occupancy level or the operational status of the property. This means that these expenses will be incurred whether the property is vacant or fully occupied. Examples of fixed expenses include property taxes, insurance premiums, and maintenance costs that must be paid regardless of how many tenants are residing in the property. These expenses are important for property owners to consider when calculating their overall financial obligations because they represent a non-discretionary cost that must be managed, irrespective of the revenue generated from occupancy. On the other hand, costs that change with occupancy rates or that are variable depend on the level of service provided are not considered fixed expenses. Such costs are directly influenced by the usage and demand for the property, making them more flexible compared to fixed expenses.