Don’t know your LMI from your LVR? Can’t quite remember what caveat emptor means but you’re pretty sure Robin Williams banged on about it in Dead Poets Society?
Never fear: help is at hand. Without further ado, here is an A to Z of some of the most common and baffling real estate terminology you will hear.
Absentee landlord: An owner or sub-lessor who does not reside in the place or area in which he/she owns real estate from which he/she derives rental income.
Agent: A person authorised to act for another (usually for the owner) in the selling, buying, renting or management of a property. Commonly used to refer to licensed real estate agents and real estate representatives.
Agents in conjunction: Two or more agents employed by a principal to sell or let real estate and share commission.
Appraisal: An informal estimate of the price of a property, usually provided by a real estate agent. An appraisal is not the same as a formal valuation.
Appreciation: An increase in the value of a property.
Arbitration: The determination of a dispute by one or more independent third parties rather than a court. Arbitrators are appointed by the parties in accordance with the terms of the arbitration agreement or in default by a court. The arbitration is conducted pursuant to the Arbitration Acts in each State and the award given by the arbitrator/s binds the parties.
Arrears: Unpaid debts.
Auction: A sale usually in public, by an auctioneer, in which property is sold to the highest bidder.
Auctioneer: An agent who is licensed to sell property by auction. Only a licensed auctioneer can conduct a property auction.
Bank valuation: A bank’s estimate of a property’s value. This is often more conservative than the actual market value.
Bid: A verbal or written offer to purchase.
BIR: Built-in wardrobes.
Body corporate (now owners corporation) : An owners corporation (formerly body corporate) manages the common property of a residential, commercial, retail, industrial or mixed-use property development. You are likely to be a member of an owners corporation if you own a flat, apartment or unit that is a part of a strata title. A ‘body corporate’ became an owners corporation on 31 December 2007, when the Owners Corporations Act 2006 came into force. This law sets out the duties and powers of owners corporations.
Bond (rental): Consideration held usually under a lease to ensure performance of lease terms and conditions. Normally refundable if possession of property is returned in good condition.
Bridging finance: A short-term loan used to allow a buyer to purchase a new property if the proceeds of a property he or she recently sold have not yet cleared.
Building Code of Australia (BCA): Sets minimum community standards for buildings in terms of health, safety and amenity in buildings for regulatory purposes. Produced by the Australian Building Codes Board (ABCB).
Building inspector: An authorised person who is responsible for checking buildings in the course of construction and completed buildings to ensure that they have been constructed in accordance with building control provisions.
Building line: The setback from the site boundary required by statutory authorities for buildings.
Building regulations: The Building Code of Australia and other regulations stipulated by local authorities relating to the design and construction of buildings.
Building restrictions: Planning and development controls that limit the use, size and location of buildings or other improvements on land.
Business broker: An estate agent licensed and certified to sell businesses.
Buyer’s market: The condition which exists when, under competitive conditions, the pressures of supply and demand are such that market prices are at a relatively low level, giving the buyer an advantage. An oversupply causing prices to decline.
Buyer’s agent: Represents a property buyer in negotiations with a vendor or his/her agent. The buyer’s agent is paid by the buyer. Buyer’s agents should be licensed and certified to act as a buyer’s agent.
Capital expenditure (CAPEX): Those items that are significant replacements or additions to existing properties or for new developments, as distinguished from cash outflows for expense items that are normally considered part of the current period’s operations. Capital expenditure does not include general maintenance and repair items.
Capital gain: The amount by which the net proceeds from resale of a capital item exceeds the book value of the asset.
Capital Gains Tax (CGT): A Commonwealth tax payable on the Capital Gain made on the sale of an investment property.
Capital growth: An increase in the value of the property over time.
Caveat: A notification on the title declaring a party other than the owner may have an interest in the property.
Caveat emptor: Latin for “buyer beware”. In a property transaction, the purchaser carries the risk. In other words, do your homework.
Certificate of occupancy / occupation: A certificate which establishes that a building or major refurbishment project has reached a stage where it complies with all relevant statutory approvals and is ready for occupation.
Certificate of title: A document issued under the Torrens System of Title, showing ownership and interest in a parcel of land.
Certified Practising Valuer (CPV): A designation of the Australian Property Institute signifying the recipient has the required education and experience to undertake comprehensive valuations.
Chattels: Any fixed asset other than freehold land. Items such as machinery, implements, tools, furnishings, fittings, which may be associated with land use, but which are not fixed to the land or premises or, if fixed, may be removed without causing structural damage to a building. Legally known as personalty.
Commercial property: Property intended for use by all types of retail and wholesale stores, office buildings, hotels and service establishments. In many property circles, commercial property refers specifically to office property.
Commission: The fee or payment made to an agent for services rendered, such as the sale of property, often calculated with reference to the value of the property, contract or agreement.
Common property: Land or a tract of land considered as the property of the public in which all persons enjoy equal rights. A property not owned by individuals but by groups; (b) In a home (villa) unit or flat development that part of the property owned and used in common by all the unit or flat owners or occupiers and which is maintained by the Owners Corporation.
Compulsory acquisition: Where an asset is acquired by a statutory authority through legislation, irrespective of whether an owner is willing to sell or not.
Conditions of sale: The conditions applicable to a sale contract made between a vendor and purchaser.
Contract: A legally binding agreement.
Contract of sale: An agreement relating to the sale of property, which expresses the terms and conditions of sale.
Conveyance: A deed which transfers ownership of common law title from one person to another.
Cooling off period: A short statutory period after the contract is made, during which the purchaser may cancel the contract unconditionally. Usually does not apply in the case of auctions.
Counter offer: A new offer, made after a previous offer has been rejected by the owner.
Date of settlement: The date on which a contract of sale is finalised and final payment is made.
Deed: A document executed under seal. For example, a conveyance.
Deposit: Percentage of total consideration, or an agreed amount, paid on exchange of contract for purchase of an asset.
Depreciation: A reduction in the value of an asset over time.
Depreciation schedule: A list of items in an investment property that can be depreciated and claimed as a tax benefit. It includes such items as carpets, hot-water systems and air conditioning.
Development approval: Approval from the relevant planning authority to construct, add, amend or change the structure of a property.
Disbursements: Recoverable costs. For example, in the case of real estate sales, expenses paid by an agent on behalf of an owner, such as advertising, rates and taxes.
Display home: A building which represents a completed example of a dwelling type offered for sale.
Dry rot: Decay of seasoned wood caused by fungus.
Easement: A right to use the land of another (not involving the taking of any part of the natural produce of that land, or any part of its soil) or a right to prevent the owner of that land from using that land in a particular manner. Most commonly used where Government authorities have the right to run, for example, electrical mains or drainage through private property. Some form of compensation may be payable.
Egress: The exit point from a property.
Encumbrance: A charge or liability on a property; for example, a mortgage or a special condition on the use to which it may be put (e.g. easements, restrictions and reservations).
Environmental impact study: A multi-disciplinary assessment of existing environmental conditions and the likely effect on a specified environment of the introduction of a proposed development or actions which may change the existing environmental conditions and ecological balance.
Equity: The value an owner of a property has in the asset above the debt owed.
Eviction: The removal of a person from a property.
Exchange of contracts: The legal process that creates a binding agreement for the sale of a property. A deposit is usually paid at this time, and may be forfeited if either party backs out of the agreement.
Exclusive listing
When a vendor has signed an agreement to make an agent solely responsible for the sale of a property during a specified period. If another agent sells the property during that time, the original agent is entitled to any commission.
Fittings
Items in a home that can be taken out without damaging the items or the space in which they were located. Includes washing machines, refrigerators and other items not usually included in a property sale.
Fixtures
Items fixed to a property in a way that would damage the item or the structure of the property if they were to be removed, such as built-in shelving or carpets. Usually included in the sale of a property.
Guarantor
Someone who agrees to fulfil a contract if the main party to the loan defaults.
Interest
The amount paid by a borrower to a lender in addition to the main amount borrowed (the “principal”). The interest rate can be fixed, variable or a combination of the two (“split loan”).
Interest-only loan
When only the interest is repaid during the term of a loan. The principal is repaid after the loan term expires.
LMI
Lenders mortgage insurance. Often payable when a borrower doesn’t have a big deposit, it’s designed to protect the lender against default.
LVR
Loan-to-value ratio: the proportion of money borrowed versus the value of a property. When the LVR is high (over 80 per cent, for example), a lender is more likely to charge lenders mortgage insurance.
Mortgage protection insurance
An insurance policy which covers a borrower’s mortgage repayments in the event of illness or injury.
Negative gearing
When the earnings from an investment property are – in the short-term, at least – less than the costs associated with the investment. The shortfall can be used to reduce tax liability in Australia, for now.
Offset account
In a mortgage offset account or home loan offset account, the credit in the account is offset daily against the home loan balance, reducing the interest charged accordingly.
Reserve price
The lowest price a vendor has agreed to accept.
Reverse mortgage
A type of mortgage, usually used by older homeowners, where repayments don’t need to be made until after the property is sold, or the last homeowner dies.
Settlement date
The date on which a property sale is finalised. The purchaser pays the vendor and gains possession of the home at this time.
Stamp duty
Tax levied on a contract, calculated as a percentage of the contract value. Varies between states and territories.
Title
The type of property ownership, for example Torrens title, strata title or company title.
Trust account
A bank account managed by a real estate where funds (such as deposits and rental income) are held on behalf of someone else.
Yield
The annual rental income of an investment property, expressed as a proportion of the property’s value.
Zoning
An urban planning tool used by local governments to determined how land is to be used. Examples include low density residential, high density residential, mixed use and metropolitan centre.