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
Taken out on property to replace or repair it if it malfunctions. It covers parts and/or service. An example is a warranty a homeowner takes out on a stove, refrigerator, or dishwasher. It ...
Same as term trust; An agreement in which the trustee takes title of the property ( called corpus) owned by the grantor (donor) to protect or conserve it for either the grantor or the ...
Geographic area that is attractive to prospective tenants. Square footage in an office building or apartment house that may be rented by a tenant. ...
City apartment building that is overcrowded, poorly constructed or maintained, and generally part of a slum. In law, a tenement also refers to possessions of an individual that are ...
(1) Written statement by a responsible individual or entity of the correctness and reliability of something. (2) Written permission to do something, such as receiving a real estate ...
If you’re an owner of a property that needs to be accounted for in your return on investment or used to calculate your capital gains and losses, then the cost basis will help you ...
Land and any existing tenements that are part of a conveyance. For example, upon closing a real estate sale. The seller deeds the premises to the purchaser. ...
The accelerated cost recovery system is a depreciation system for tax purposes mandated by the Economic Recovery Tax Act of 1981. In 1986 the Accelerated Cost Recovery System (ACRS) was ...
Number of small holes in a wall allowing water to drain from it. This makes the walls able to withstand water pressure. ...
Have a question or comment?
We're here to help.