Certified Residential Appraiser Practice Exam

Which operating expenses vary with the level of occupancy?

1. Fixed Expenses

2. Overall Capitalization Rate

3. Reversion

4. Variable Expenses

The correct answer is: Variable Expenses

The correct answer is variable expenses, as these costs fluctuate based on the occupancy level of a property. Variable expenses typically include costs that are directly related to the operation and maintenance of the property, such as utilities, repairs, and some management fees. When occupancy levels rise, these expenses tend to increase because more resources are needed to support the additional tenants or units in use. Conversely, when occupancy is low, these expenses are reduced since there are fewer tenants or units requiring services. In contrast, fixed expenses remain constant regardless of occupancy levels. These can include property taxes, insurance, and salaries of permanent staff, which do not change based on how many units are occupied. The overall capitalization rate and reversion do not directly relate to operating expenses; rather, they pertain to valuation and investment returns, making them less relevant to the specific question about expenses that vary with occupancy levels. Understanding the relationship between occupancy and operating expenses is crucial for appraisers as it helps in accurately assessing a property's financial performance.