Definition of "Utility"
In order to determine what is the definition of utility, we only need to look at what the term comes from. The word utility can be used to describe something useful and when looking at what is utility in real estate we see amenities that provide functionality and the actual ability to use properties based on our modern lifestyle. Thus, utility is an additional service that is required so that the property can be fully functional. These services are paid on a monthly basis and include services such as electricity, natural gas, air conditioning, sewage, water, trash, and, based on the evolution of modern living needs, sometimes internet and cable as well.
In other words, the term utility covers services provided to a parcel of land by public utility companies, such as gas, water, electricity.
Why are Utilities Important in Real Estate?
Whether you are interested in rental properties or are looking to purchase a home, the cost of utilities can tell us a lot of things. When the landlord determines the price they charge tenants for rentals, they keep in mind the cost of utilities because these monthly expenses influence your return on investment and profit. Utilities can also be offloaded to the tenant, making them responsible for the monthly costs from gas, electricity, water, etc. However, by not passing the utilities responsibility, they make sure that all the bills are paid on time.
Utilities in Commercial Real Estate
Regarding commercial real estate, utilities are included in the operating expenses as they are paid out-of-pocket and impact the Net Operating Income (NOI). These costs are split between the multiple commercial tenants through the pro-rata method and come as a cost added to the monthly rent. The cost of utilities and other operating expenses is split based on the square footage of the space rented for common areas. Otherwise, and mainly if it can be determined how much each renter spends, they each pay the amount of water, gas, and electricity they use.
Popular Real Estate Terms
The meaning of the term tort outlines a wrongful act resulting in injury or damages. For example, trespassing on someone’s private property can end up destroying a part of it. ...
A leasehold estate that can be determined by the lesser or lessee at any time. ...
Method of describing a real estate property offering by a developer in lieu of a prospectus. ...
Proportionate share of an item to total items in the population. ...
Real estate sales contract where possession and use is provided to the buyer, but the deed is kept by the seller until the full purchase price is met whereupon the title is placed in the ...
Legal right of the buyer of real estate for the acquisition price paid if the seller does not render the deed to the property. The buyer's lien is not only for the purchase price paid but ...
Real estate, home and life insurance use numerous ambiguous terms you should know because you can significantly benefit from them. Let’s discover what the word boot usually applies to ...
The occupancy ratio is the ratio of rented or used space to the total amount of space available. An occupancy ratio or occupancy rate is used by analysts when hospitals, senior housing, ...
Same as term junior mortgage: Mortgage placed on a property after a previous mortgage. It can be a second, third, etc. mortgage. A junior mortgage is subordinate to the terms of a previous ...
Have a question or comment?
We're here to help.