Certified Residential Appraiser Practice Exam

Which of the following would be considered operating expenses when calculating net operating income?

1. Vacancy losses only

2. Property taxes and management fees

3. Market rent adjustments

4. Income derived from other sources

The correct answer is: Property taxes and management fees

When calculating net operating income (NOI), operating expenses include costs necessary to maintain and manage a property, which directly impact its operational performance and profitability. Property taxes and management fees are classic examples of operating expenses. Property taxes are mandatory dues paid to local governments, a fundamental cost of owning real estate that is incurred regularly. Management fees pertain to the costs associated with hiring property management services, which help oversee the operation of the property, ensuring that it remains occupied and well-maintained. In contrast, vacancy losses refer specifically to lost income due to unoccupied units, and while important in calculating total income, they do not fall under routine operational costs. Market rent adjustments are often related to income expectations rather than expenses and can represent a projected change in potential rental income rather than a factual cost incurred in property maintenance. Additionally, income derived from other sources would not be classified as an operating expense; rather, it is considered supplementary income that contributes to total revenue. Thus, the correct answer encompasses both property taxes and management fees as essential operating expenses directly involved in the property’s management and ongoing operational costs.