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
(1) Licensed broker employed to represent and match both buyers and sellers. Usually employs several real estate agents in an office. (2) Commission or fee charged to sell real estate or ...
Gets rid of unwanted substances and materials from a residence or office building. Waste includes solids and liquids, hazardous and nonhazardous materials. ...
Opening so that air or gas may enter or leave. For example, an air conditioner has a "vent open" or "vent closed" knob for outside air. The "vent close" switch must be on for air ...
Millennials – also known as Generation Y, because they come after the so-called Generation X - is a term coined for a generational extract of people born at the end of the first ...
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. ...
Note having more than one maker, if one or more of the makers default on the note, all makers are sued jointly, rather than just one or all, to make restitution ...
A method of brick construction where the bricks are laid with their sides facing outward. ...
When talking about the open space ratio we are referring to a term that is used in zoning laws and regulations. The open space ratio is a term used to measure open space on a developed land ...
Method to obtaining title to property through open, notorious, adverse, and continuous use of the property for a statutorily prescribed period of time. For example, Jack openly and ...
Have a question or comment?
We're here to help.