Accredited Residential Manager (ARM)
Certification / Institute of Real Estate
Management (IREM) Exam 1 Questions
and Correct Answers (Verified Answers)
Plus Rationales 2026
Exam Overview
• Administered by: Institute of Real Estate Management (IREM)
• Format: 100 multiple-choice questions, open book
• Time Limit: 120 minutes
• Passing Score: 70%
• Delivery: Live online proctored (LOP) via ProctorU
• Experience Required: Minimum 12 months managing a residential or mixed-
use portfolio
• Exam Fee: $60 (ARM) or $100 (CPM)
DOMAIN WEIGHTING (Based on ARM Content Outline)
,Domain Weight
Financial Management 25–30%
Property Operations & Maintenance 20–25%
Leasing & Marketing 15–20%
Legal & Risk Management 15–20%
Human Resources & Staff Management 10–15%
SECTION I: FINANCIAL MANAGEMENT (Questions 1–30)
Question 1
A residential property manager is analyzing a property's financial performance.
Which of the following correctly describes Net Operating Income (NOI)?
A) Total collections minus capital improvements
B) Effective Gross Income (EGI) minus Operating Expenses
C) Gross Potential Rent minus vacancy and collection loss
D) Net income after debt service and income taxes
Answer: B
Rationale: NOI is calculated as Effective Gross Income (EGI) minus Operating
Expenses. It represents the income available to pay debt service (mortgage
payments) and provide return on investment to the owner. NOI does not include
debt service, capital improvements, or income taxes.
,Question 2
What is the correct formula for calculating Capitalization Rate (Cap Rate)?
A) Property Value × NOI
B) NOI × 100
C) Annual Net Operating Income ÷ Property Value (or Purchase Price)
D) Gross Scheduled Income × 0.75
Answer: C
Rationale: Cap rate is the percentage of a property's value that is generated
annually as NOI. The formula is: Annual NOI ÷ Property Value = Cap Rate. This
metric helps investors compare the potential return on different properties.
Question 3
Effective Gross Income (EGI) is calculated as:
A) Gross Potential Rent minus Vacancy and Collection Loss plus Other Income
B) Gross Potential Rent plus Operating Expenses
C) Net Operating Income plus Debt Service
D) Gross Potential Rent minus Capital Expenditures
Answer: A
Rationale: EGI represents the total income a property is expected to generate after
accounting for vacancy and collection losses, plus any other income (e.g., laundry,
parking fees). It is a key step in calculating NOI.
Question 4
What is the primary purpose of an operating budget in residential property
management?
, A) To maximize owner profits regardless of expenses
B) To project income and expenses for a given period and guide financial decision-
making
C) To eliminate all variable expenses
D) To set rent prices based on competitor rates only
Answer: B
Rationale: An operating budget projects expected income and expenses, serving as
a financial roadmap for the property. It helps managers make informed decisions
about spending, staffing, and capital improvements.
Question 5
Which of the following is a capital expenditure (CapEx) rather than an operating
expense?
A) Monthly landscaping service
B) Utility bills
C) Roof replacement
D) Property management fees
Answer: C
Rationale: Capital expenditures are major, long-term improvements that extend the
life or value of a property (e.g., roof replacement, HVAC replacement, parking lot
resurfacing). Operating expenses are routine, day-to-day costs.
Question 6
What does a "favorable variance" in a budget indicate?
A) Actual expenses were higher than budgeted
Certification / Institute of Real Estate
Management (IREM) Exam 1 Questions
and Correct Answers (Verified Answers)
Plus Rationales 2026
Exam Overview
• Administered by: Institute of Real Estate Management (IREM)
• Format: 100 multiple-choice questions, open book
• Time Limit: 120 minutes
• Passing Score: 70%
• Delivery: Live online proctored (LOP) via ProctorU
• Experience Required: Minimum 12 months managing a residential or mixed-
use portfolio
• Exam Fee: $60 (ARM) or $100 (CPM)
DOMAIN WEIGHTING (Based on ARM Content Outline)
,Domain Weight
Financial Management 25–30%
Property Operations & Maintenance 20–25%
Leasing & Marketing 15–20%
Legal & Risk Management 15–20%
Human Resources & Staff Management 10–15%
SECTION I: FINANCIAL MANAGEMENT (Questions 1–30)
Question 1
A residential property manager is analyzing a property's financial performance.
Which of the following correctly describes Net Operating Income (NOI)?
A) Total collections minus capital improvements
B) Effective Gross Income (EGI) minus Operating Expenses
C) Gross Potential Rent minus vacancy and collection loss
D) Net income after debt service and income taxes
Answer: B
Rationale: NOI is calculated as Effective Gross Income (EGI) minus Operating
Expenses. It represents the income available to pay debt service (mortgage
payments) and provide return on investment to the owner. NOI does not include
debt service, capital improvements, or income taxes.
,Question 2
What is the correct formula for calculating Capitalization Rate (Cap Rate)?
A) Property Value × NOI
B) NOI × 100
C) Annual Net Operating Income ÷ Property Value (or Purchase Price)
D) Gross Scheduled Income × 0.75
Answer: C
Rationale: Cap rate is the percentage of a property's value that is generated
annually as NOI. The formula is: Annual NOI ÷ Property Value = Cap Rate. This
metric helps investors compare the potential return on different properties.
Question 3
Effective Gross Income (EGI) is calculated as:
A) Gross Potential Rent minus Vacancy and Collection Loss plus Other Income
B) Gross Potential Rent plus Operating Expenses
C) Net Operating Income plus Debt Service
D) Gross Potential Rent minus Capital Expenditures
Answer: A
Rationale: EGI represents the total income a property is expected to generate after
accounting for vacancy and collection losses, plus any other income (e.g., laundry,
parking fees). It is a key step in calculating NOI.
Question 4
What is the primary purpose of an operating budget in residential property
management?
, A) To maximize owner profits regardless of expenses
B) To project income and expenses for a given period and guide financial decision-
making
C) To eliminate all variable expenses
D) To set rent prices based on competitor rates only
Answer: B
Rationale: An operating budget projects expected income and expenses, serving as
a financial roadmap for the property. It helps managers make informed decisions
about spending, staffing, and capital improvements.
Question 5
Which of the following is a capital expenditure (CapEx) rather than an operating
expense?
A) Monthly landscaping service
B) Utility bills
C) Roof replacement
D) Property management fees
Answer: C
Rationale: Capital expenditures are major, long-term improvements that extend the
life or value of a property (e.g., roof replacement, HVAC replacement, parking lot
resurfacing). Operating expenses are routine, day-to-day costs.
Question 6
What does a "favorable variance" in a budget indicate?
A) Actual expenses were higher than budgeted
