Real Estate Appraisal Practice Exam

An appraiser is performing an income-based appraisal on a commercial property. Which of these items would be shown as a fixed expense on the appraiser's reconstructed operating statement?

1. Repairs and maintenance

2. Real estate tax

3. Utilities

4. Management fees

The correct answer is: Real estate tax

In an income-based appraisal of a commercial property, fixed expenses are costs that remain constant regardless of the property's occupancy level. Real estate taxes are a prime example of a fixed expense because they are based on the assessed value of the property and do not fluctuate with the property’s income or tenant occupancy. By contrast, repairs and maintenance, utilities, and management fees can vary significantly based on occupancy and other operational variables. For instance, repairs and maintenance may increase in response to specific needs or issues that arise, utilities may fluctuate based on how many tenants are in the building, and management fees could vary depending on the level of service required or the occupancy rate of the property. Thus, real estate taxes stand out as a predictable and constant expense, making them a key component in the reconstructed operating statement for the appraisal.