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
Measurement of investment return that relates current income to the investment cost. Example: Brian Whyke bought a parking lot for $150,000, which generates annual revenue of $90,000, ...
Method used by appraisers and investors to evaluate a level of payment income stream for a fixed period of years predicated on a specific interest rate. ...
Retail businesses next to each other with common walls on each side and the same roof. ...
Room that is fit for living in. the building in which the room is located conforms with the building code and has a certificate of occupancy. Usable for all purposes, but does not include ...
Determines the ability of soil to absorb and draw down water. A percolation test is essential to determine the location of a drainage field for waste disposal. ...
In between, intermediate, intervening; passing an interest from a principal to a second party and then to a third party. ...
Contract containing provisions of the insurance policy specifying who the parties are, what amounts and due dates, deductibles, time period, ceilings, kind of property., location of ...
When a debtor defaults on a loan for which a deed of trust is given, the trustee is required to have a sale of the real estate security for the benefit of the lender. A deed of trust is ...
Person or business that benefits from the work of another person or business. The recipient has not compensated the other party for this gain. In law, the one being enriched at the ...
Have a question or comment?
We're here to help.