California Real Estate Practice Exam

The highest annual operating expense of an apartment normally would be assigned to:

1. General maintenance

2. Management fees

3. Property taxes

4. Utilities

The correct answer is: General maintenance

When considering the highest annual operating expense of an apartment, property taxes typically rank as one of the most significant costs incurred by property owners. While general maintenance is crucial for the upkeep of the property, its expense can vary widely based on several factors, including the condition of the property, the age of the building, and the extent of required repairs. Property taxes, on the other hand, are generally calculated based on the assessed value of the property and are a fixed annual expense that must be paid regardless of the property’s usage. Given that property taxes are often substantial, they usually surpass general maintenance costs when reviewing the overall operating budget for an apartment complex. Utilities can also contribute significantly to expenses, but they fluctuate depending on occupancy levels and usage, which makes them inconsistent compared to the predictability of property taxes. Management fees are typically less than both property taxes and maintenance expenses linked to ongoing property care. Therefore, property taxes are usually the highest annual operating expense of an apartment rather than general maintenance, which can change based on specific needs and conditions.