When an appraiser is reconstructing an operating statement to reflect stabilized operations, which of the following items is typically adjusted to a market-based level?
Correct Answer
C) Property management fees
In a stabilized operating statement, expenses are adjusted to reflect typical market costs for competent management. Property management fees are an operating expense that should reflect market rates for such services, even if the owner self-manages or uses a non-market rate. Mortgage interest, income tax, and depreciation expense are not included in the calculation of net operating income (NOI) for real estate appraisal purposes. NOI is a pre-debt, pre-tax measure of operating performance.
Why This Is the Correct Answer
In a stabilized operating statement, expenses are adjusted to reflect typical market costs for competent management. Property management fees are an operating expense that should reflect market rates for such services, even if the owner self-manages or uses a non-market rate. Mortgage interest, income tax, and depreciation expense are not included in the calculation of net operating income (NOI) for real estate appraisal purposes. NOI is a pre-debt, pre-tax measure of operating performance.
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