The
amount of money that the buyer is
required to pay the seller to
complete the purchase of real estate
after all adjustments have been
made, and trust deposits (if
applicable) have been deducted;
frequently referred to as balance
due on closing.
A
statement of the financial position
of a business at a specific date by
summarizing assets, liabilities, and
shareholder’s (owner’s) equity. The
balance sheet provides information
concerning the resources of a
corporation including claims against
those resources and is grouped under
three categories. Figure
bellow
illustrates a typical brokerage
balance sheet.
Assets:
Resources acquired from which future
benefit may be obtained and ordered
based on decreasing liquidity. Items
least capable of being converted
into cash are listed last.
Liabilities:
Obligations arising from past
transactions, typically ordered
based on time of maturity with the
longest dates listed last. However,
exceptions apply.
Shareholder’s (Owner’s)
Equity:
Remaining interest of the owner
after all liabilities are deducted
from assets. Equity items are
usually listed in terms of
permanency; in other words, capital
contribution amounts are listed
prior to accumulated earnings.
A final payment on a mortgage at its
maturity date to pay off the debt in full.
See Figure B.2 for a typical five-year
Canadian mortgage in which a balance is due
on the 60th payment amounting to $48,887.41.
A means
of estimating the value of property
through the use of an overall
capitalization rate (or a discount
rate), that represents the weighted
average of selected components of
the property being valued.
The band
of investment technique is most
frequently associated with
mortgage/equity and land/building
components, although other
approaches are possible. For
example, in recent years, risk and
probability theorists have applied
the band of investment concept to
arrive at a weighted average
discount rate when discounting
future cash flows to arrive at an
estimate of present value. The
discount rate is constructed based
on the probability of various events
occurring in the marketplace.
For
real estate practitioners, the band
of investment method is typically
used with equity and mortgage
components to arrive at an overall
capitalization rate. The formula
applied is:
Ro = (M x Rm) + (1–M) (Re)
Where:
Ro = Overall Capitalization Rate
M = Mortgage Ratio
Rm = Mortgage Capitalization Rate
(Constant)
Re = Equity Capitalization Rate
Example of
Band of
Investment
Salesperson Lane is estimating the
value of a multi-residential
property based on equity and
mortgage components. Her research
indicates that an equity
capitalization rate of 12% (.12) and
a mortgage capitalization rate
(mortgage constant) of 8.97% (.0897)
is appropriate. Properties of this
type normally have an equity to
mortgage ratio of 25/75. Therefore,
the overall capitalization rate is:
Ro = (M x Rm) + (1–M)(Re)
= (.75 x .0897) + (.25 x .12) =
.097275 (.0973 or 9.73%)
If the net operating income of this
property is $39,872, then the
estimate of value would be:
An accounting of the items that make
up the difference between the
balance shown on a bank statement
and the balance of cash according to
the depositor’s records. The purpose
of reconciling the bank statement is
to provide assurances that the bank
and the depositor are in agreement
concerning the amount of money on
deposit. A bank statement total may
vary from a brokerage’s book total
due to issued cheques which have
been recorded but not cashed and
deposits which have been recorded
but have not been received by the
bank. Reconciliation is necessary
because the bank and the depositor
are maintaining independent records
of the bank account activity and
differences must be accounted for
(reconciled).
Real estate brokerages are required
to perform a monthly reconciliation
of their real estate trust
account(s). The format will vary by
provincial jurisdiction, but most
dictate a reconciliation containing
the following elements.
A balance as per the bank
statement less any outstanding
cheques which are usually
recorded by date, cheque number,
and amount.
The addition of outstanding
deposits which are normally
recorded by date, trade number,
address, and amount.
The calculation of balance
per bank statement, less
outstanding cheques, plus
outstanding deposits to arrive
at the reconciled bank balance
that must equal the balance for
the bank account according to
the brokerage books of account.
A schedule of all client
deposits now held in the trust
account must agree with the
reconciled bank balance. Client
deposits are normally recorded
by date, trade (transaction)
number, address of property, and
amount.
Signature of the broker
attesting that the
reconciliation is correct
A group
of elevators adjacent to each other
located within a specific demised
enclosure.
The
location of banked elevators will
vary based on intended use.
Elevators in commercial buildings
are normally situated in a
centre-core or side-core area. Core
refers to the area that houses
elevators, mechanical systems,
electrical services, housekeeping
facilities, and washrooms. The
centre-core structure appears most
efficient for multiple tenant floor
plans while the side-core provides
more open space for a large, single
tenant. The side-core arrangement is
proving popular with the growing use
of regional/national distribution
and call centers in which large
groups of employees are concentrated
within an open landscaped
arrangement.
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