Your Guide to Real Estate Lingo
Just like any industry, real estate has some pretty hefty jargon that can be tough to understand. Here’s your personal real estate dictionary to guide you through it.
Abutting – Properties which are closely joined at the border of the land.
Adverse Possession – If one person occupies another person’s land for a long period of uninterrupted or undisputed time then ownership of the land passes from the person who owns the land to the person who has had uninterrupted occupation. The reason for this is that land is valuable and if it is not looked after, the law is not very sympathetic to this. The time period differs between states but it’s usually in excess of 12 continuous years.
The most common situation that gives rise to claims of adverse possession are fence lines that are not in alignment with the title boundaries. Obtaining a surveyor’s report will assist in determining if any adverse possession issues may arise.
Adjustments – Adjustments are a part of the settlement process where either 1) any unpaid rates owing are included in the final settlement amount in addition to the balance of the purchase price, OR 2) any rates that have already been paid will be partially refunded to the vendor. The amount of adjustments for rates are calculated based on the number of days from the day the rates were due to the settlement date (it’s complicated). For more information and advice speak to your legal representative/ conveyancer.
Agent – A licensed real estate agent is able by law to represent a vendor in negotiating the sale of the vendor’s property. By law, in most Australian states and territories a person is not able to represent themselves as an estate agent unless they hold a current estate agent license. Private real estate companies like buyMyplace provide a loophole for this by using their estate agent license to list an owner’s property listing on their behalf.
Appraisal – An estimate of the market value of your home.
Apt – Apartment. Often an apartment will also have an associated body corporate.
Auction – Where your home is sold at a public sale to the highest bidder, provided the seller’s reserve price has been reached or exceeded. There is no cooling off period and contracts are exchanged immediately and unconditionally. The purchaser pays a deposit, which is usually 10% of the total price.
If there has been a lot of interest in a property from several potential purchasers during the marketing campaign, an auction is a great way to inspire a sense of urgency and competition among buyers, which may result in a higher price. However, if the vendor’s price is not reached, the property is then usually offered for private sale. This can result in buyers losing interest and the vendor left with the advertising costs.
Auctioneer – A person licensed by law to be able to conduct a public auction. Often the auctioneer is also a licensed estate agent.
BC – Body corporate. A body corporate exists where there are multiple titles on a single piece of land and where there is common ground, shared structures or shared areas on the property. The body corporate has responsibility for items such as insurance for the common areas and buildings, maintenance of the grounds and common areas. The owners of the individual properties covered by a body corporate comprise the shareholders of the body corporate. The size of the individual owners’ shareholding (and percentage of contributions to the body corporate charges) in the body corporate is usually determined by the respective size of the individual owners’ properties.
Body Corporate Levy –The body corporate levy is the fees and charges that the body corporate is authorised to charge for expense items such as insurance, fire services, maintenance and other special items. Typically a body corporate will require payment of these fees and charges (or levies) on a quarterly basis.
Bridging Finance – A short-term finance arrangement to ‘bridge’ the financing for a purchase, which relies on funds from a sale that has yet to occur. Most banks are willing to help with bridging finance. If not there are specialist companies who provide short-term finance. But beware, it is usually much more expensive.
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Buyer –The person buying the property. Also called the purchaser.
Buyer Advocate – A person who represents the purchaser in negotiations with a vendor for the purchase of a property. The buyer advocate will try to find the best possible property that is the closest match to the buyer’s requirements and then purchase it on the best possible terms, at the best possible price for the buyer. The buyer advocate is paid by the buyer.
BRs – Bedrooms.
Building Inspection – A pre-purchase inspection of the property by a qualified building inspector to identify any possible defects. Common problems identified include low water pressure, termites and other pests, cracking and land subsiding, unauthorised building work, worn out stumps and electrical defects. Try to learn of potential problems before buying property so any costs to fix the problems can be agreed before signing the contract of sale.
Caveat – A legal document that can be lodged at the Land Title office by someone who claims an interest in a land title. A caveat acts as a statutory notice to anyone who tries to deal with that title that someone else is claiming an interest in it.
Clear Title – Land that does not have any registered charges, mortgages, debts or other claims against it is called clear title.
Contract of Sale – The document required to create a legally enforceable agreement between the vendor and the purchaser for the sale of a property. The laws in each Australian state and territory relating to the sale of land may differ slightly, however as a guide the essential requirements are:
-The vendor has provided a signed statutory document to a potential purchaser before signing any contract of sale, which has the required information in it relating to the property (vendor’s statement);
-The vendor and purchaser have signed a contract of sale specifying the essential terms of the sale (usually provided by the vendor or the vendor’s agent) including the parties, the price (including any deposit), a description of the land and improvements, the date of sale and any other conditions of the sale;
-The purchaser has provided an agreed deposit; and
-The vendor has accepted the purchaser’s offer and deposit.
The contract of sale is the most important document in the property sale process. Take professional advice before signing it! For more information see your legal representative, conveyancer/ solicitor.
Contract Note – A document given to a prospective buyer who is making an offer. The contract note is legally binding as a contract when signed by both parties. However the parties may agree that a more detailed contract of sale will subsequently replace the contract note.
Conveyancing – If you want to buy or sell a property you’ll have to sign a contract. The legal work involved in preparing the Contract of Sale and supporting statutory documentation, mortgage and other related documents, is called conveyancing. A conveyancer is a professional who assists in the legal transfer of property. Conveyancing can be done by a licensed conveyancer, a solicitor or yourself. For more information see your legal representative.
Conveyancer – A conveyancer is someone who is licensed to undertake all of the paperwork associated with the property sale and purchase process. Conveyancers are trained in the conveyancing process, however they are not legally trained to the same level as a licensed solicitor is. If there is a legal problem that arises during the legal process of finalising the sale of a property, a conveyancer will refer the matter to a solicitor.
Cooling Off Period – In certain circumstances a purchaser can exercise a “cooling off” period if they don’t want to proceed with the sale. Cooling off laws may differ depending on things such as whether the property is sold by auction or privately, the property’s value, the land size and the type of property (residential, rural, commercial etc). You should also reference your state’s legislation to see whether or not it is a requirement.
Covenant – An agreement by one party to adhere to certain terms, conditions or restrictions. A covenant is not usually valid unless noted on the title to the land. A covenant can potentially have a big impact on what the land can be used for, and consequently the value of the land. The nature of the covenant should always be established and this question should be asked: ‘What effect will this covenant have upon the future plans for the property?’ For more information see your legal representative.
Day of Sale – The day of sale is the date on which the vendor accepts the purchaser’s offer. It is essential that this date be recorded because it is the starting point for the property transaction timeline that follows when a property is sold. Certain things, such as release of deposit, must occur within a certain number of days from the day of sale.
Deposit – A portion of the agreed purchase price paid by the purchaser of the property at the time of signing the Contract of Sale. This is done to close the sale and prevent the vendor from selling the property to any other person. The amount of deposit is usually open to negotiation, however it is generally 10% of the agreed purchase price. The deposit is often paid into the vendor’s representative’s trust account, pending completion by the purchaser of the remaining due diligence on the property. The deposit is released from the trust account to the vendor before the final settlement date if the purchaser is satisfied that the title to the property and other required statutory disclosures are in order, and that the purchase price will satisfy any mortgage that the vendor may have registered against the property.
If the buyer pays the deposit directly to the vendor and then finds something wrong with the property, they may have trouble obtaining a refund. Buyers should take care in paying the deposit into the vendor’s conveyancer’s trust account. Buyers should not release the deposit to the vendor until they are satisfied and all is clear. This is particularly relevant if the buyer suspects the vendor is suffering mortgage stress and is anxious to obtain their funds directly.
Dummy Bid – A false bid made or accepted by the auctioneer. Dummy bids can include bids made by non-genuine bidders and fictitious ones pulled from thin air by the auctioneer. In some Australian states the practise of dummy bidding is illegal.
Dual Occupancy – A block of land or existing dwelling zoned to allow the owner to erect a building(s) on land, which has two distinct living arrangements (for example, a duplex or a house with a granny flat attached).
Easement – A right to use all or part of the land owned by another person for a specific purpose. For example, your property may have a water or sewerage pipeline running across part of it, which requires the relevant water authority to have access to the pipes for repairs. These rights are called an easement. An easement will be noted on the title.
ESP – Estimated Selling Price. The price that the person selling the property estimates it will realistically sell for. In some Australian states, if the property is sold by an agent, the ESP must be recorded on the authority to sell as either a single figure or as a range where the difference between the top and bottom figures does not exceed 10 percent. For example, $400,000–$440,000.
Exchange of Contracts – Both the buyer and the seller sign the Contract of Sale and give each other a copy. This is when the buyer usually pays 10% of the sale price as a deposit. The exchange of contracts commits both buyer and seller to the transaction. Prior to an exchange of contracts, any verbal agreement you have reached is not binding to either party.
Exclusive Sale Authority – This is the agreement an agent can secure from a property vendor, which gives them the right to represent the vendor exclusively in relation all aspects of the sale, including being the point of negotiation for all interested purchasers. The duration of an exclusive sale authority should be clear on the authority.
Many people aren’t aware that they can engage an agent to sell their property on a non-exclusive basis. This means you can negotiate with potential purchasers separately from the agent and potentially make significant savings on the commission that would otherwise go to the agent. If you would like to retain your ability to speak to potential purchaser’s separately from an estate agent, use our non-exclusive agency form. For more information see your legal representative.
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Fixture and Fittings – Items such as hot water systems, built-in cupboards, bath, stove, etc. that cannot be removed from a property without causing damage are called fixtures and fittings. If there is any doubt about whether an item is to be included with the property or not as a fixture or fitting it should be agreed at the time of signing the Contract of Sale.
FHOG – First Home Owners Grant. A government scheme for first home owners that provides cash assistance with the purchase. Some Australian states also have complimentary schemes that provide matching or additional payments. For more information visit www.firsthome.gov.au
FSBO – For Sale By Owner. Used to describe a sale where the vendor of the property has not given a licensed agent an exclusive authority to represent the vendor. FSBO means the vendor is selling their own property privately, without an agent. This includes advertising their own property and dealing directly with potential buyers to successfully sell the property themselves.
FSBT – For Sale By Tender. This describes a process where a vendor will set a date by which interested purchasers can separately make offers for the property based on what they believe it is worth. FSBT usually applies to high value or unusual properties. Once the tender date is closed, the vendor will then decide which offer they will negotiate further on.
Guarantee – A guarantee is where a person agrees to meet the legal obligations of another person should said person default. If a property is being purchased in the name of a company or trust, often the vendor will require a personal guarantee from a Director of the company. This means should the company then default on the purchase, the vendor will be able to make that Director complete the sale. Guarantees are very serious legal obligations, so if you are asked to provide one be sure to seek legal advice. For more information see your legal representative.
Grout – Mortar that fills the joints between tiles or other masonry.
Guarantor – The person who provides the guarantee.
Home Loans – There is a huge range of mortgage finance products available on the market at any given time. Generally they fall within one of the two following categories:
1 – Variable home loans: A variable home loan means the interest rate varies throughout the term of the loan and is subject to change according to the economic climate and the official rate set by the reserve bank. This means that you will feel any rate rises, and if lucky, any rate cuts.
2 – Fixed home loans: A fixed home loan means that the interest rate will stay the same throughout the term of the loan. This means that any adjustments made by the reserve bank are irrelevant, and won’t affect your loan.
There are also variations of these two loan types. These include split, capped rate, and honeymoon loans.
1 – Split loans – Split loans allow you to combine the best of both worlds, and have part of your loan amount at a fixed rate and part at a variable.
2 – Capped rate loans – These are loans with rates that cannot exceed a set percentage for a fixed period of time, but may decrease in that time.
3 – Honeymoon loans – This type of loan sees lower rates for the first 6 to 12 months then reverts to a standard rate and the repayments increase.
Home Staging – Pre-sale styling of your home to appeal to more buyers. Home staging generally achieves a ‘top’ sale price and minimisestime your home is on the market.
IO – Interest-only. A loan where the borrower only pays the interest with no reduction in the outstanding balance (or principal). The benefits of an interest-only loan include a lower monthly payment than a ‘principal and interest’ repayment loan for the same amount of loan at the same interest rate. The downside is that payments made to service an interest-only loan do not make any reduction in the amount of the loan, which ultimately needs to be repaid. For more advice on the differences between an interest-only loan and a ‘principal and interest’ loan speak to your financial advisor.
Land Tax – Land tax is a state-based tax calculated on property value. It does not generally apply to your home or principle place of residence. There are different exemptions and exclusions between different states, so see your legal representative.
LVR – Loan to Value Ratio – The term used to describe the percentage ratio between a loan that a lender is willing to loan against a property compared to the property value. Don’t assume just because you have purchased the property for a certain price that your lender will agree with that price. Always speak with your lender before you make an offer. Most lenders will give up to 80% of the value that they determine the property is worth. This is important because the value a lender will apply to a property will be based on the lender’s calculation of the value, not necessarily what the vendor says it is worth.
Mortgage – A mortgage is what happens when someone borrows money from someone else (usually a bank) to assist in the purchase of a property. The person who borrows the money (the ‘mortgagor’) signs over (or ‘mortgages’) their legal rights of the property to the person they borrowed the money from (the ‘mortgagee’). The mortgagee is able to take over the legal ownership of the property if the person who borrowed the money is not able to meet their obligations under the terms of the loan. This can include selling the property to recover the debt. This is called a Mortgagee Sale.
Mortgage Stress – Someone experiences mortgage stress when they are unable to meet their mortgage repayments and is under pressure from their mortgagee (bank or mortgage lender) to bring their payments up to date. The best way to deal with mortgage stress is to actively engage in strategies to bring mortgage debts up to date. This may include selling a property to preserve any remaining equity before it is eroded by the effect of compounding or capitalising interest. Acting quickly can mean the difference between saving thousands of dollars or being left with little or nothing if the mortgagee is forced to take possession of the property and sell it to recover debts.
Mortgagee – The lender of money for a mortgage. To provide security for the loan, the purchaser of the property ‘mortgages’ their legal rights in the property back to the lender as security for repayment of the money borrowed.
MIP – Mortgagee in possession. MIP occurs when an owner of a property is not able to meet their obligations under their mortgage loan, so the lender (or mortgagee) takes possession of the property to recover the money owed. MIP is what happens if mortgage stress can’t be resolved.
Mortgage Insurance – Mortgage insurance is often a requirement of a mortgage loan from a bank. It covers any shortfall between the value of the property and the debt owing in the event that the person who borrowed the money is unable to make their loan repayments. It is important to understand that mortgage insurance is not insurance against not being able to make your loan payments – mortgage insurance is taken out by the bank to cover the bank in the event of a shortfall. For advice on the right insurance products to protect you, speak to your financial advisor.
Mortgagor – The person who signs over their legal rights in a property to secure money. Only a person with a legal ownership interest in a property is able to be a mortgagor.
Negative Gearing – Where a property is purchased for investment purposes and the amount of interest paid on the mortgage is greater than any rent received from the property. The difference can potentially be claimed as a tax deduction. Negative gearing only applies in investment scenarios. For more information on negative gearing and property investment speak to your financial advisor.
Non-Bank Lender – A mortgage lender who sources the money they loan on mortgage security from other sources, such as the global capital markets or from wholesale banking facilities not otherwise available to the general public. Sometimes the best mortgage product for a certain type of borrower will be available from non-bank lenders.
Off-the-Plan – When a property is sold subject to the registration by the Land Titles Office of a Plan of Subdivision – a.k.a a property is bought before a a structure has been built on it. The benefits of buying “off the plan” often include substantial savings on stamp duty.
OFI – Open for inspections, when the vendor of the property opens the property and makes it available for potential purchasers to inspect.
OFP – Open fire place.
OSP – Off-street parking.
On the Market – During an auction, when the bidding has reached the vendor’s reserve price, the property will be declared ‘on the market’. This means that it will be sold to the highest bidder from this point on upon the hitting of the gavel. Experienced property buyers will wait at an auction until the property is declared to be ‘on the market’ so as not to reveal how much money they actually have to spend. The auctioneer is obliged to disclose whether a property is on the market upon request. So, if you are at an auction and aren’t sure, don’t be afraid to ask the auctioneer.
Over Capitalised – A property is described as being ‘over capitalised’ if the amount of capital spent is greater than its value. Spending too much upon purchase or during renovations results in over capitalisation. If you are thinking of renovating a property, but are worried about over capitalisation, obtain a professional valuation before you purchase the property. Explain your plans to the valuer so the valuation report will return a realistic value after improvements.
PI – Passed in. When a property fails to sell at auction it is “passed in” at the highest bid. Negotiation then commences with the highest bidder. If agreement is not reached then anyone can commence negotiations to purchase the property once the auction date has passed.
P&I – Principle and interest. The type of loan where both the principal amount of the loan and the interest are repaid over the life of the loan. The benefits of this type of loan are that the outstanding balance of the loan reduces over time as the periodic repayments are made.
Power of Attorney – A power of attorney (PoA) is a legal document someone signs to give authority to another person to act on their behalf. A PoA can be specific to allow only a particular transaction or it can be very general covering all of a person’s affairs. If you are going to be away or otherwise engaged at the time important documents are required to be signed then a Power of Attorney will let you complete the transaction. For more information and advice see your legal representative.
Private Treaty – Private treaty is another way people buy and sell their property. It’s where the property has an asking price and is sold by negotiation.
Private Sale – When a property is sold by private negotiations between the vendor and the purchaser. This method of selling differs from an auction in that there is no specific date on which the property is advertised and sold. A private sale allows a vendor to negotiate over a period of time with a variety of potential buyers and without the pressure of having to commit to a decision to sell on a particular date. It also allows a vendor to sell their property more discreetly and privately than in a public auction.
Rates – Rates refers to the annual, quarterly, half-yearly or monthly payments made to local shire councils for amenities like water, sewerage and garbage collection. There may be other levies for improvements to parks and roads. Council rates are a form of property taxation and property values play an important part in determining how much each individual rate payer contributes. It is sometimes the case that rises in property values has forced the owner to sell their property.
A part of the settlement process includes what is called an adjustment for rates. This means that either any unpaid rates owing on the property will be paid as part of settlement in addition to the balance of the purchase price, OR any rates that have already been paid will be partially refunded to the vendor on a pro rata basis. For more information and advice see your legal representative.
Reserve Price – The minimum price that the vendor will sell the property for at auction.
Settlement – Settlement is where the buyer pays the balance of the purchase price and becomes the legal owner of the property. The settlement period is usually around 30, 60, or 90 days after exchange. However, this can be changed to meet individual situations.
Skylight – A window in a roof that allows natural light to illuminate a room.
Sole Agency Agreement – The same as an exclusive agency agreement, except that the owner may sell privately without paying the agent’s fee.
Solicitor – A solicitor is a person who is legally qualified to practice law and who holds the required legal professional indemnity insurance and current legal practising certificate.
SP – Sold Prior. Often a property will be listed as for sale by auction. However, sometimes the vendor receives an offer to purchase the property at a price acceptable to the vendor, so the property sells prior to the advertised auction date.
Stamp Duty – Money that the State Government requires to be paid at the point of registration of the Transfer of Land document when settlement is completed. The amount of stamp duty is calculated by reference to the sale value of the property. If a bank is involved in providing mortgage finance, they will deduct the amount of stamp duty and title registration fees from the amount being loaned and use that money to complete the process of paying the stamp duty and registering the purchaser as the new owner of the property. Make sure you understand how much the stamp duty and registration fees are when doing your budget planning as it can add up quickly. Generally, stamp duty costs are about 5% of the purchase price of the property. Stamp duty is generally not payable where a property is sold “off the plan”.
STCA – Subject to Council Approval. Used where there may be the possibility of obtaining a council approval for further development on the property. For example, a vacant block marketed as “possible 4 townhouse development STCA” means up to 4 separate townhouses may be built on the block provided the council approves the development. STCA does not mean the necessary permits and approvals for any development proposals are actually in place. Check with your legal representative if you aren’t sure whether permits are in place.
Strata Title – Strata title describes a type of land title where there may be multiple property owners in layers (or strata) on a single piece of land. The most common type of strata titles are in high rise apartments with multiple floors, where title to one property on one floor (or strata layer) will be over (or beneath) another title on the property. A strata title property will usually have a body corporate.
Subject to Tenancy – Describes the situation when a property is sold with the property currently being occupied by tenants paying rent to the owner. The purchaser may wish to keep the tenancy if the property is purchased for investment purposes, or the purchaser may wish to have the tenants move out at the time of final settlement. If this is the case then the purchaser is able to require the tenants to vacate by law.
Title – A person legally registered as the owner is said to have title to the property. Only someone who has the legal title to the property is able to enter into a contract to sell it.
Vacant Possession – Describes where a property is vacant at the time of the final settlement with a prospective purchaser.
Vendor – Sellers of property are referred to as ‘vendors’. For legal purposes, make sure that the name(s) of the vendor on the contract to the property match the name(s)s on the Certificate of Title.
Vendor’s Advocate – Also referred to as a seller’s advocate. Someone who assists the seller of a property in negotiating the terms of sale with a purchaser.
Vendor’s Statement: – The statement of important information relating to the property that is required to be disclosed to a potential purchaser of the property before entering into a binding Contract of Sale. Generally, the statement includes information about the land title and other statutory items that affect the property, such as the council rates and charges, building approvals, road widening proposals and any body corporate information that may apply. It is essential that the information required to be disclosed in the vendor’s statement is accurate, up to date (usually not older than three months) and complies with the relevant legislative requirements. If not then the vendor’s statement could be defective, which could in turn give a purchaser the right to renegotiate the terms of the sale or walk away altogether. For more information and advice see your legal representative.
WC – Water closet (also known as a toilet).
WIR – Walk in robes (also known as wardrobes).