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Real Estate Jargon Glossary

Real Estate Jargon Glossary

Have you ever been confused by property and real estate jargon and industry terms?

REALas is about buyers helping buyers.

Here is a glossary of common real estate terms from Australia’s first real estate buyers advocate, David Morrell.

Adverse possession

If you have possessed land that is not on your title, after a certain time you can claim ‘adverse possession’, that is, the land reverts to your ownership. It generally happens when fences are not correctly aligned.

Agent

A person acting on behalf of another person; at law, an agent has the power to bind his or her principal to a contract without a third party as if they were the principal

Attorney

A person appointed to act on behalf of another in legal and business affairs.

Authorised investments

Assets in which a trustee is permitted to invest by the terms of a trust deed.

Balanced gearing

The situation in which an investment in either property or shares is funded by borrowings and where the interest payments balance with the interested earned on the investment.

Bear

An investor who believes the market will go down (a cynic).

Beneficial ownership

The entitlement to the benefit as distinct from being the registered owner.

Beneficiary (of a deceased estate)

A person to receive assets from a deceased estate.

Beneficiary (of a trust)

A person who benefits from the ownership of a property in a family trust.

Bequest

Assets left to a person in another person’s will.

Body corporate

A body that collectively manages the subdivision of a building or land.

Boom

A period in which there are excellent trading conditions.

Bridging finance

A temporary loan. You have found your dream home but have not yet managed to sell your existing property. Without the proceeds from the sale of your current property, how can you afford to buy the new one? Bridging finance enables you to purchase a new property while you wait for the sale of your existing property. The interest rates are often high.

Bull

An investor who believes the market will go up (an optimist).

Capital gains tax

If you make money on the sale of an asset the government holds out their hand for a piece of the pie. But if you are selling your only house or principal residence the government takes nothing.

Capitalisation method

A way of valuing a property by discounting rental payment at a suitable market-based interest rate in order to obtain the present market value.

Cash flow

In real estate, money generated from your property.

Caveat

A caution or warning. When you lodge a caveat you are registering your interest in the property. You should lodge a caveat as soon as you buy a property.

Caveat emptor

Let the buyer beware.

Caveat venditor

Let the seller beware.

Certificate of title

A document that provides evidence of the ownership of the property. The original is held at the Titles Office and a duplicate is held by the bank or the owner’s safe for safe-keeping.

Chattels

Items that pass with the property that are attached to or included in the sale, for example, light fittings, carpets and blinds.

Contract note

A simple form of securing the real estate transaction which both the seller and buyer sign. It is binding for both parties.

Conveyance

The transfer of an interest in a property either by sale, transfer or lease.

Convenant

A restriction on the use of the land that recognises the rights to another party.

Deceased estate

The property of an owner who has died.

Depreciation

The automatic writing down each year of an asset with a limited economic timeline. Mainly used for accounting purposes.

Easement

A particular right to use a portion of the land in a limited way which is available to a person who is not the owner of the property and is acknowledged in the title documents. Usually relates to sewage or utilities and usually recognises right of way.

Encumbrance

A charge on the title for the property, usually in the form of a mortgage.

Equitable mortgage

A transfer of an interest in land that is unregistered and is used as security for the repayment of a loan.

Equity

The vendor’s proportion of an asset; what is left in the value of the property after all the liabilities have been deducted.

Expression of interest

A means of selling a property whereby a vendor seeks offers without alluding to a purchase price.

Fee simple

Freehold land where the holder has absolute ownership subject to the payment of rates and taxes. However, the government can compulsory acquire the land if it sees fit.

First mortgage

The charge that ranks first by way of a mortgage ahead of any other mortgages.

Fittings

Individual items that can be removed from a property but are usually included, for example, the hot water service, stove, electric light fittings, dishwasher, blinds and pool equipment etc.

Fixtures

Items which cannot be removed without causing considerable damage to the property as opposed to fittings.

Freehold

Similar to ‘fee simple’ but freehold means absolute ownership.

Gazumping

When the seller repudiates a verbal agreement with a prospective purchaser and accepts a higher offer from another party.

Gearing

Borrowing money by way of funds in order to add to the owner’s own money when buying a home.

Gearing ratio

Percentage of borrowed funds divided by the owner’s personal stake.

General engagement

A written authority to act in the sale of a property or leasehold where the owner agrees to pay the agent a commission for services rendered.

General law title

Usually titles to land not under the Torrens title system, often onerous and expensive as a series of documents is needed to link the original grant with all subsequent transactions.

Holding cost

The costs of holding a property such as rates and land tax insurance, together with maintenance and interest that are incurred by a party pending receipt of income from a tenant or the sale of the property to another party.

Home equity conversion loan

A loan by mortgage that by agreement does not require any repayment. The intention is that the total debt will be repaid upon the death of the owner.

Improved value

The value of the land including the value of the building erected on it as opposed to site value only.

Improvements

The value of the buildings that are on the land as distinct from the land itself.

Interest

The periodical payment made by a person to an institution from which they have borrowed money, that is, a fee paid for the use of money.

Interest cover

The amount of times that the net rent – before deducting interest and tax – covers the interest payments. It is a measure of security of the interest payments.

Joint tenancy

The ownership of the land by two or more people collectively, in such a way that on the death of one owner ownership passes to the survivor.

Land tax

A tax imposed by the state government on land, based on the site value of the property.

Lease

A written contract which allows one party to use the property of another party for a specific time, subject to the payment of rent and other conditions embodied in the lease document.

Lease-back

The sale of a property whereby the purchaser grants a lease to the vendor.

Leasehold

Land which is held for a particular period under lease. When the lease expires use of the land reverts to the owner.

Lessee

The tenant or occupier under a lease contract.

Lessor

The landlord or owner under a lease contract.

Leverage

Borrowed funds which are used to supplement the investor’s own money when buying a property.

Lien

Used to secure a debt or performance or obligation, it is the right over another person’s property.

Market value

The price that a buyer is prepared to pay and a seller is prepared to accept in an open market transaction where both parties are informed and acting at arm’s length from each other, with neither party having a vested interest or being under pressure to buy or sell respectively.

Mortgage

The formal document which registers the transfer of an interest in the land for the security for the repayment of a loan.

Mortgage insurance

A particular form of insurance that protects the lender on the security of the property in case of any defaults by a borrower.

Mortgagee

The lender under the mortgage.

Mortgagor

The borrower under the mortgage.

Negative gearing

The amount of funds borrowed, in addition to the investor’s own money, when acquiring a property where the outgoings (including interest) exceed the rental return.

Net annual value

The notional rent of the property which covers both the land and the buildings

Neutral gearing

When an investor has purchased the property with the assistance of borrowings and the rental payments equal the cost of borrowings. The borrower does not have to pay any additional money.

Non-conforming usage

The use of the property which is not allowed under current regulations but is allowed by way of special dispensation where the person in occupation had the use before any rules had been changed.

Occupier

The person in possession of the land. Usually this is the tenant but sometimes can refer to the owner.

Off the plan

Buying property before it has been constructed on the basis of plans given for construction.

Old system title

A title not under the Torrens title system. Its is onerous and expensive and needs a serious of documents that link together all previous transactions.

Onerous lease

A lease which has more disadvantages than advantages for the lessee than for the lessor.

ONO

Or nearest offer.

Option

The choice, but not the obligation, to purchase land at a defined price at a particular date in the future.

Outgoings

Expenditure related to owning property, for example rates, boy corporate charges, insurance.

Overquoting

Where an agent promises a vendor an unrealistic price to secure the listing of the property.

Passed in

The point in an auction when the bids offered have not met the vendor’s expectations and further negotiation between the vendor and the purchaser takes place.

Possession

The holding of the land.

Private sale

A method of sale in which the buyer and the seller negotiate, as distinct from a public auction.

Ratchet clause

Part of a lease document that allows the rent to be higher than the previous rent being paid.

Rates

Taxes imposed by government authorities.

Rent

The payment of money by a tenant for the use of a property.

Rental guarantee

Where the vendor guarantees an amount of rent for the property for a period of time as an incentive for the purchasers to buy.

Reserve

The price for which the vendor is prepared to sell the property at an auction.

Right of first refusal

The point in an auction when the highest bid has not met the vendor’s expectations and the highest bidder is given the first right to negotiate with the vendor at their reserve price.

Sale and lease-back

An ideal way of realising equity but retaining the use of the property by leasing it back from the new owner.

Second mortgage

A charge on the land that ranks behind the first mortgage, usually indicating that the property is fully geared, meaning the property has as much borrowings against it as to be equal to the value of the property and the owner has little equity left after the loans have been repaid.

Section 51 deduction

Tax deductions for all losses and outgoings incurred with respect to a property.

Secured loan

A loan guaranteed by a charge over an asset.

Set sale

This is a variation to the form of private sale. It occurs when the agent advertises a property without committing to a particular price, but to a price range. The agent then tries to encourage buyers to produce their best offer within that range. All offers must be submitted by an expiry date that the vendor must commit to. Purchasers are encouraged to submit offers at their highest level with no commitment from the vendor about whether or not they will accept one. This form of selling often involves misleading and deceptive conduct. It is a system originated by real estate agents as an alternative to the auction system. It is growing in popularity as the auction system starts to wane. It is clearly in the favour of the vendor and therefore should be avoided by purchasers if possible.

Settlement

When a property is exchanged, title is given in consideration for the payment of money.

Simple interest

Interest calculated on the original capital only, not on any past amounts.

Site cover

The land area on which the building is erected, divided by the whole of the land.

Sole agency

Where a vendor or lessor contracts with a real estate company the sole right to represent them in the sale or lease of a property and explains the terms of remuneration to the agent and the parameters of price or rent.

Stamp duty

State government fees levied on every sale of property, payable by the purchaser.

Strata title

A form of ownership of units or factories that have a body corporate.

Subdivision

When a large block of land is divided into smaller blocks.

Summation method

A method of placing value on a property that values the land independently, free of buildings, and adds an amount for the depreciating value of the existing buildings.

Tenancy in common

Allows two or more people to own the property so that in the case of the death of one party that proportion passes to that person’s heirs. A ‘tenant in common’ is a co-owner and should not be confused with a ‘lessee’.

Time-sharing

A form of ownership that gives rights for use for a particular time, for example, for one week per year.

Torrens title

The government register that gives evidence about the title of the land. The government issues a certificate in the name of the new owner.

Transfer of land document

Used when there is a change of ownership. A document with all the details is forwarded to the Titles Office and the original certificate is amended accordingly.

Underbidder

The second highest bidder at an auction.

Underlet

Tenanted at a rental below what other similar properties are renting for.

Underquoting

When an agent indicates a price that a property will sell for, but is well short of the market and the owner’s expectations.

Unimproved value

The value of the land when there are no buildings on it.

Vacant possession

Property not subjected to any leases.

Valuation

A written report estimating the market value of a property, usually conducted by a professional registered valuer for a fee.

Vendor terms

When a property is sold the purchaser pays only a small portion of the purchase price at settlement, with the balance being a loan from the owner for an agreed period of time. Usually used as an incentive to achieve a higher sale price.

Vendor’s statement

The statement given to a purchaser in Victoria that sets out the particulars of the property; it is signed by the vendor and given to the purchaser prior to any contracts being signed.

Yield

The return when investing in property. The formula is obtained by dividing the rent per annum by the price and multiplying by 100.

Zoning

What a property can be used for as determined by local authorities, for example, residential or commercial.

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