Property Acquisition Cost
The definition of property acquisition cost in real estate is the total recorded cost of a piece of real estate after reductions in price, incentives, closing costs and any other expenditures have been factored in, barring sales tax. This number is used primarily to denote the true amount paid for fixed assets beyond the initial price of the property.
To better understand the definition of the property acquisition cost, let’s take a look at some examples that demonstrate how exactly property acquisition costs might be calculated in an actual sale.
Examples of the property acquisition cost in real estate
Drumman Construction Co. is a small construction company operating out of a mid sized town in Arizona. Seeking to expand its business, the company begins the process of purchasing a plot of land on which they plan to construct a warehouse and head office. After finding a suitable plot, the process of purchasing can begin.
The plot in question is priced under market value, making its purchase an attractive proposition. In addition to the already low price, the sellers are also offering a significant price reduction due to some unseemly structures on the property, which are of no concern to the construction company.
The buyers begin the process of purchasing the land, and all goes smoothly. After completing all the necessary paperwork, the buyers are ready to move forward with the transfer of ownership. However, before the name on the deed can be changed, a legal issue must be settled regarding the property line between the neighboring plot and the one in question. A lawyer is hired, and the issue is settled.
After the sale is completed, the real estate agent takes their commission and the land is now in the possession of the construction company. The total property acquisition cost in this instance is the sum of the fee paid to the lawyer, the closing costs in relation to the transaction, and the reduction in price as it affects the initial list price. Note that the sales tax is not factored in here.
Popular Real Estate Terms
Right of a property owner located adjacent to an airfield to use the airspace above a certain distance to fly an airplane. However, the owner may not be allowed to put structures, signs or ...
An interior wall dividing an area into two or more rooms or separate areas. The division of real estate between owners giving each an undivided interest. ...
Entrance or path to a land parcel. Passageway existing from property. An egress may lead to a roadway or some other form of exit. ...
A step's edge. ...
Lumber of no more than 8 inches wide and 2 inches thick. ...
Costs incurred in connection with real property that increase its cost basis or worth, such as a new roof, an additional room, or paneling a room. ...
Affordability is a term used to describe the ability of a person or entity to pay in relation to the income earned by them. Affordability is the comparison of a person's income against ...
Unanticipated damages incurred as the result of the sub effects of a parties breach of responsibility or contract. Consequential damages often result in financial compensation. ...
Same as term resale proceeds: Net amount received when property is sold. It equals the selling price less outstanding mortgage balance less all costs incurred in connection with the sale. ...
Have a question or comment?
We're here to help.