The real estate industry is full of unique terms, phrases and colloquialisms that can be a little overwhelming if you don’t speak the language. We’ve put together a list of terms that you need to know if you’re considering buying, selling or investing in property.
- Appraisal – An appraisal is the value given to a property by a qualified professional. The value is usually derived from recent comparable sales in the area. Typically a written appraisal is provided and can be used as the basis for a mortgage loan.
- Appreciation – An increase in the value of property (or other asset) over time.
- Auction – Public sale of a property by competitive bidding.
- Body corporate – The legal entity representing the owners of a piece of land which is subdivided into a strata building of apartments, units or townhouses. The body corporate controls and administers common property such as stairwells, car parks and swimming pools. Each state and territory has legislation governing the roles and responsibilities of a Body Corporate.
- Bond (Rental) – An amount of money equivalent to 4 weeks of rent is held within the terms of a lease. This money is used to cover losses or damage caused by a tenant. If the property is left in an acceptable condition the bond is released to the tenant.
- Building approval – Planning and building approval are two separate government processes. Building approval covers adherence to the Building Code of Australia and Plumbing Regulations, and includes aspects like quality of construction and fire protection. Planning approval relates to any impact that the development may have on neighbouring land or properties and includes aspects such as car parking, privacy and shadowing of neighbouring property and impact on the streetscape.
- Buyers agent – A licensed professional acting on behalf of a buyer. A buyers agent specialises in the search for a property as well as the negotiation and purchase of the property. It’s important to note that the buyer’s agent does not sell property. In contrast, the real estate agent primarily represents the interests of the vendor. It is illegal for one agent to represent the interests of (and accept commission from) both the vendor and the buyer.
- Buyers market – A buyers market occurs where there are more properties for sale than buyers wanting to purchase them. In this case supply exceeds demand. In this situation the buyer has more negotiating power than the seller. This often results in lower prices and/or better sale conditions.
- Capital gain – The profit made when a property is sold for more than the original purchase price.
- Capital Gains Tax – If an investment property (which is a capital asset) is sold at a profit, the Australian Taxation Office collects capital gains tax (CGT). There is no CGT payable on the family home.
- Commission – The payment made for services rendered. For example, a real estate agent collects commission from the vendor (often a percentage of the purchase price) for negotiating the sale of the property.
- Contract of sale – A legal document outlining the conditions of sale of a property. The contract is prepared by a lawyer or conveyancer and has standard additions like title documents, council documents, inclusions and exclusions and a copy of the buyer’s rights. Conditions and inclusions are tailored for the individual circumstances of the sale. The contract sets out the rules by which the sale will proceed and settle.
- The buyer and vendor are not legally bound until this contract is signed by both parties and exchanged (for more information see exchange of contract and cooling-off period).
- Conveyance – Conveyancing is the legal process which transfers ownership of property from one owner to another. A professional conveyancer or conveyancing solicitor is required to ensure the property transfer meets all necessary legal requirements.
- Cooling-off period – Following the exchange of contracts, the buyer usually has a cooling-off period during which they can withdraw from the sale. The vendor does not have a cooling-off period. The cooling-off period is usually five working days but can be waived, reduced or extended by negotiation. There is no cooling-off period when purchasing at auction.
- Council rates – Council rates are a government property tax paid by each land owner based on the valuation of their property. The revenue collected from rates delivers services like rubbish collections, roads and footpaths, lighting and parks maintenance.
- Date of settlement – The date that the contract of sale is finalised, final payment is made to the vendor and mortgage documents come into effect. At this point the new owners take possession of the property.
- Deposit – A deposit is paid by the purchaser to the vendor at the exchange of contacts. It is usually a percentage of the purchase price.
- Depreciation – Depreciation of a property is a decline in value due to market forces. It means that the property is valued less than what it was when purchased. Depreciation is also an accounting term indicating the decreasing value of an asset over time. Investors can claim the depreciation of fixtures and fittings for their investment property as a tax deduction. It is imperative that every investment property has a professionally developed depreciation schedule to assist with calculations for legitimate tax deductions.
- Development approval – A legal document, issued by the relevant State or Territory planning authority, allowing the construction, amendment or redevelopment of a property. It outlines specific requirements to which the development must adhere.
- Equity – This is the value of the property which is actually owned. It is calculated as the difference between the market value of the property and the amount of money still owed on the mortgage.
- Exchange of contracts – The exchange of signed contracts legally binds the buyer and seller to proceed with the sale as per the conditions of the contract. Buyers usually have a cooling-off period. A deposit is generally paid to the vendor at the exchange of contacts. If the sale does not proceed to settlement after the exchange of contracts, the obstructing party may be subject to forfeiting of the deposit or a damages claim.
- Fittings – Fittings are contents of a property. They are freestanding items which can be removed from the property without causing damage, like curtains, rugs and lampshades.
- Fixed interest rate mortgage – A mortgage in which the interest rate remains unchanged for a specified period of time, e.g. the first year of the loan, the first three years of the loan, the entire life of the loan.
- Fixtures – Fixtures are contents of a property. They are attached to the property and cannot be removed without damaging the home. Central heating/air-conditioning units, fixed floor coverings, kitchen cabinets and hot water systems are examples of fixtures.
- Foreclosure – A legal process in which the borrower loses their interest in the mortgaged property. The most common reason for foreclosure is payment default on the mortgage. The property is usually sold at public auction with the proceeds of the sale going towards the mortgage debt.
- Foreign investment review board – A government entity which reviews proposals by foreign persons to invest in Australia. This board also makes recommendations regarding Australia’s foreign investment policy.
- Gazumping – When a vendor has made a verbal agreement to sell the property but then sells it to another buyer at a higher price.
- Guarantor – A guarantor agrees to fulfil a loan contract if the main party defaults on the loan. In the circumstance where a purchaser has the capacity to make loan repayments but has insufficient savings for a deposit, a guarantor can provide additional security to help the buyer secure the loan. Although the property being purchased is the main security for the mortgage, the equity in the guarantor’s property may be used as additional security.
- Holding deposit – An initial deposit made to show the buyer’s commitment to the property and/or to secure the sale of the property before the full deposit is paid.
- Interest (also known as interest rate) – The fee charged by the lending institution for the service of borrowing money. It is usually expressed as an annual percentage of the loan amount (interest rate). The rate of interest may be fixed or may fluctuate over the period of the loan (variable interest rate).
- Interest-only loan – The borrower only needs to pay the interest accrued on the loan for a specified length of time. Principal payments continue thereafter.
- Joint tenancy – Where a property is owned jointly by two or more parties. In the event of death, the decedent’s share is transferred to the other owners.
- Land tax – A State Government tax on the value of land that is paid by the property owner. The principal place of residence is exempt from land tax.
- Landlord – The owner of a property being rented to tenants.
- Lease – A contract between a landlord and tenant that outlines the terms and conditions under which the tenant may occupy the property.
- Market price – The price paid for a property.
- Market value – The estimated amount for which the property could sell.
- Median property value – The midway point of all property sold in a geographical area over a certain period of time. The median is considered a more reliable representation of the property value in an area than the average, as the average can be skewed higher or lower if there are very expensive or very inexpensive properties in the area.
- Mortgage – A legal contract between the borrower and a lender (bank, building society) whereby the lender has title over the property being purchased until the borrower repays the money borrowed plus interest. The mortgage gives the lender security over the loan if the borrower defaults on payment. In this situation the lender can instigate foreclosure.
- Mortgage insurance – An insurance policy taken out by a borrower. It protects the lender (bank or building society) if the borrower can’t make repayments on their mortgage. Lenders often require the borrower to take out mortgage insurance if they borrow more than 80% of the value of the property.
- Passed in – When a property doesn’t sell at an auction because the highest bid is lower than the reserve price it is described as being passed in.
- Planning approval – Planning approval involves assessing a proposal to develop land. It is carried out by a relevant local government authority. Planning approval relates to the impact that the development may have on neighbouring land or properties and can include aspects like car parking, privacy and shadowing of neighbouring property, and impact on the streetscape. Building approval covers adherence to the Building Code of Australia and Plumbing Regulations and includes aspects such as quality of construction and fire protection.
- Principal – The amount of money borrowed and still to be repaid to the lender. Regular repayments to the lender generally include interest and principal. The payment of principal is the only way to reduce the amount of money owing to the lender.
- Private sale – Where the owner of a property arranges for the sale of their property without the services of a real estate agent. The owner negotiates directly with the buyer.
- Private treaty sale – Sale of a property where the real estate agent negotiates privately between the buyer and vendor for the outcome of a sale.
- Property management – A property manager is engaged by a property investor to manage all aspects of the property in return for commission or payment. The role may vary but can include locating and screening tenants, managing legal requirements of the lease and bond, handling complaints and emergencies, managing repairs and maintenance, and inspecting the condition of the property periodically.
- Rent – The amount paid periodically by the tenant to the landlord in exchange for use of the property.
- Rent review – Usually conducted annually or biannually, this is a review of rent under a lease, often using a predetermined method such as market rate estimated by an agent.
- Rent roll – The database of rental properties that are managed by a real estate agent.
- Rescind – Declaring a contract void such that it has no legal force, for example, terminating a contract of sale.
- Reserve price – The lowest price the vendor will accept for sale of the property at auction.
- Seller’s market – When there are more buyers wanting to buy a property than there are properties for sale. A seller’s market is characterised by higher prices and the vendor having the negotiating power around conditions of sale.
- Settlement – The final step in the legal process of transferring ownership of the property to the new owner. Final payments are made and mortgage documents come into effect.
- Settlement date – The date on which settlement occurs.
- Stamp duty – A State Government tax imposed on certain transactions like the transfer of documents relating to property ownership.
- Strata title – A form of ownership for apartment blocks, townhouses and units whereby the owner has title over part of the building (their apartment, for example) and a share of common property like the driveway and stairwell.
- Subdivision – The dividing of a parcel of land into smaller sections, each with their own separate title, for development or sale.
- Sublease/Sublet – A contract where all or part of the rental property is leased to a third party by the lessee. The original lessee remains responsible to the landlord for conditions of the lease and the sublease cannot extend past the end date of the lease.
- Tenant – Person(s) renting the property.
- Title deeds – Documents used to show ownership of a property.
- Torrens Title – Central method of registering and recording land ownership with the local Land Titles Office. Generally, land ownership as recorded on the Torrens Register cannot be disputed.
- Vacancy rate – The vacancy rate is expressed as a percentage and lets us know how many properties in a particular area or region are untenanted. This figure helps property investors assess the strength of demand for rental properties in a particular area. In Australia, a 3% vacancy rate indicates a balanced market. A vacancy rate higher than 3% indicates an oversupply of rental properties and a vacancy rate lower than 3% indicates a tight rental market.
- Vacate – When the tenant moves out of a rental property. The lease details any requirements for leaving the premises, such as the amount of notice required and the condition in which the property should be left.
- Valuation – A valuation is the value given to a property by a qualified professional. The value is usually derived from recent comparable sales in the area. Typically a written valuation is provided and can be used as the basis for a mortgage loan.
- Variable interest rate – An interest rate on a loan or mortgage which varies over time based on changes in the official interest rate.
- Vendor – The person selling their property.
- Yield – A measure of the percentage of income generated by an investment. To calculate gross yield for a property the annual rental income is divided by the purchase price of the property and expressed as a percentage. To calculate net yield the costs of agent fees and other charges are subtracted from the rental income before being divided by the purchase price of the property. Yield differs from ‘return on investment’, which is calculated by annual rental income divided by the amount borrowed to finance the purchase.
Want more information that will help you buy or sell your home? We’ve put together a list of resources that will come in handy. Is there another website we should add to the list? Please send us an email with your suggestion.
Buying and selling
Domain – http://www.domain.com.au
Realestate.com.au – http://www.realestate.com.au
NSW – Land Tax Act 1956 – http://www.legislation.nsw.gov.au/viewtop/inforce/act+27+1956+FIRST+0+N/
NSW – Anti-Discrimination Act 1977 – http://www.legislation.nsw.gov.au/viewtop/inforce/act+27+1956+FIRST+0+N/
NSW – Dividing Fences Act 1991 – http://www.austlii.edu.au/au/legis/nsw/consol_act/dfa1991137/
Vic – Consumer Affairs Due Diligence Checklist – http://www.consumer.vic.gov.au/duediligencechecklist
State and Territory Real Estate Institutes
Real Estate Institute of New South Wales – http://www.reinsw.com.au/imis15_Prod/web
Real Estate Institute of Victoria – http://www.reiv.com.au
Real Estate Institute of the Australian Capital Territory – http://www.reiact.com.au
Real Estate Institute of Queensland – http://www.reiq.com
Real Estate Institute of Tasmania – http://reit.com.au
Real Estate Institute of Western Australia – http://reiwa.com.au
Real Estate Institute of South Australia – http://www.reisa.com.au
Real Estate Institute of Northern Territory – https://www.reint.com.au
The states and territories offer a range of grants for home buyers but the details for each differ from state to state.
New South Wales – http://www.osr.nsw.gov.au/grants
Victoria – http://www.sro.vic.gov.au/sro/sronav.nsf/LinkView/BBB89806303008C1CA2575CB00011AD565A02CC2EEDDD527CA2575A1004420E8
Queensland – https://greatstartgrant.osr.qld.gov.au/
South Australia – http://www.sa.gov.au/subject/Housing,+property+and+land/Building+and+development/Financial+considerations+when+building/Grants+for+people+buying+property
Tasmania – http://www.sro.tas.gov.au/fhog
Australian Capital Territory – http://www.revenue.act.gov.au/home-buyer-assistance/first-home-owner-grant
Western Australia – http://www.finance.wa.gov.au/cms/content.aspx?id=344
Northern Territory – http://www.treasury.nt.gov.au/TaxesRoyaltiesAndGrants/HomeOwnerIncentives/FirstHomeOwnerGrant/Pages/default.aspx