Tips & Guides

The A-Z of real estate, property and finance terms for homebuyers to understand

By 9 December 2021 No Comments

Every industry has its own special language, and the wide world of real estate, property and finance is no exception. Full of abbreviations and terms that don’t mean what you think they should, it can get confusing when you’re navigating the already-massive journey of buying a house. So, we’re breaking it down. Welcome to LandingPad’s Homebuyer Dictionary.

Administration Fund
This fund is used to cover the cost of any necessary insurances, budgeted repairs and contractors to perform ongoing maintenance tasks on a strata-titled property. A lot owner’s regular strata fees contribute to the administration fund.

Approval in Principle (Pre-Approval)
This is an indication from a lender that they will be willing to lend you a certain amount of money, subject to specified conditions.It’s important to know that approval in principle is not a guarantee that your loan will be fully approved, but a guideline on the amount. The lender will only approve the loan if certain conditions are met, such as the lender’s own valuation of the property. There are likely to be other conditions too. Generally, presuming that your circumstances don’t change, your pre-approval will last for around three months, but timeframes can differ from lender to lender.

Appraisal
Appraisals are only intended as a guide to pricing and can usually be obtained free of charge by calling up any registered real estate agent. They are calculated by the agent using their knowledge of the local area and recent sale prices for similar properties. They Should only ever be used as an estimate of price and are not definitive and have no legal standing. And take note, an appraisal is different to a valuation.

Appreciation
The increase in a home’s value over time is known as appreciation. Just how much a home appreciates each year depends on the local real estate market and any improvements to the home. A home’s appreciation is calculated based on the market value of comparable homes for sale in the neighbourhood.

Arrears
When rents, or mortgage repayments, haven’t been paid on time then they are in arrears and it is a breach of either a tenancy agreement or mortgage. Home loan arrears can end with foreclosure and rent arrears could lead to an eviction.

Basic Variable
A basic variable home loan is a mortgage that is usually is light on features, but offers borrowers a lower interest rate and mortgage fees than a standard variable home loan.

Body Corporate
Also known as the owners’ corporation, the body corporate is an organisation that’s in charge of managing and maintaining common areas in a multi-dwelling property, usually a strata-titled property like a block of apartment blocks or groups of townhouses or villas. This type of property may have shared driveways, parking areas, stairwells, or lifts and it’s the body corporate’s job to insure and maintain these shared areas.

Bond
A rental bond is the security that a landlord or property manager expects a tenant to hand over as a security deposit. It generally works out at four times the weekly rent and must be paid before the tenant moves in. The bond gives the landlord some financial security in the event that their tenant skips out without paying the rent, or damages their property. It is usually held by a third party such as a rental bond board and is normally refundable if the possession of the property is returned in good condition.

Break Costs
Put simply, break costs (or break fees) are costs to be paid if a borrower terminates or refinances a fixed rate home loan earlier than the agreed term. This fee is in addition to other costs that a lender could charge when a loan is paid out and does not typically apply to other types of loans, such as variable rate home loans. The break fee is designed to compensate the lender for any loss of profit it suffers as a result of the cancellation and can add up to a significant sum.

Bridging Finance
This is a short-term loan taken out by a homebuyer to ‘bridge the gap’ between buying a new property and selling an existing one. Effectively it’s a loan that helps a homeowner afford owning two properties at once and it can come with either fixed or variable rates.

Building Inspection
Before buying, a building inspection is the examination of a house to find out whether it has any serious defects or structural problems. Many buyers pay professional building inspectors to view a home before agreeing to buy a property so they can get a heads up on any serious problems that may require substantial repair work. Once the inspection is complete, the buyer can make an informed decision on whether to proceed with the purchase. You can easily book a building inspection by a trusted professional through the LandingPad app.

Buyer’s Market
When a property market is considered to be experiencing favourable conditions for a purchaser, it can be referred to as a buyer’s market. It is when the pressures of supply and demand are such that market prices are at a relatively low level, giving the buyer an advantage.

Buyer’s Agent
A licensed professional agent who works for and is paid by the buyer, rather than the seller (who a traditional real estate agent represents). They will shortlist properties, negotiate sale prices or bid at auctions on behalf of the buyer.

Capital Gains
The amount by which a property has increased, relative to what was paid for it. Put simply, if a property was bought for $800,000 and is now worth $1 million, then the capital gains are $200,000.

Capital Gains Tax
Capital Gains Tax (also known as CGT) is a tax an owner may have to pay when they make a profit from the sale of a property. Generally, homeowners won’t have to pay CGT when they sell the home they live in,but usually have to pay CGT when selling an investment property.

Caveat
Sometimes, a person other than the owner may have a legal interest or claim over a property. A caveat is a legal notice placed on the certificate of title that warns a potential buyer or lender about that person’s claim. When a caveat is in place, it may prevent the property from being sold until the claim has been resolved.It’s important to seek legal advice on why a caveat may need to be put in place, or how to have one removed.

Certificate of Title
This is a legal document that identifies a property’s registered owners. It should also include details of any mortgagees as well as legal notices such as caveats.

Clearance Rate
This is a common term used a great deal in the media.The clearance rate is the proportion of properties that are successfully sold at auction in a suburb or region, within a certain period such as a week or any single Saturday Usually expressed as a percentage, clearance rates are used to indicate the supply and demand in an area For example, if 100 properties are put up for auction during the first week of of March, but only 80 are sold then the clearance rate for that week would be 80 per cent. Not all neighbourhoods have a large auction market, so it is important to find out the proportion of homes put under the hammer in an area before placing too much emphasis on the clearance rate.

Comparison Rate
There are numerous types of home loans in the mortgage market, and each of them may have different interest rates and fees. It can get tricky to compare the cost of each one over the life of the loan so that’s where the comparison rate comes in. includes interest as well as lenders fees and charges that apply for the life of the loan and presents them as an annual percentage rate to make it easier to compare loans across different lenders.

Commission
The fee or payment made to a real estate agent for their services, such as the sale of property. It is often calculated as a percentage of the sale price of a property.

Conditional Offer
This is an offer to buy a property if certain conditions are met. If a seller accepts an offer, then a buyer legally required to follow through and buy the property once the conditions have been met. If the conditions aren’t met, then the buyer’s lawyer or conveyancer can negotiate what to do next.

Construction Loan
These are loans designed for people who are intending to pay a builder to construct their home. A construction loan lets you access your funds as the building work progresses. This is important because builders usually require part-payment at specific stages of the building work.

Contract of Sale
This is a written agreement between a buyer and seller of a property. It usually includes important contractual terms relating to purchase price, settlement date, and fixtures and fittings included in the sale.
Generally, the contract of sale also describes the condition the property needs to be in at time of settlement. When it comes to contracts of sale, it’s usually a good idea to seek a review from a conveyancer or lawyer to explain the terms and conditions of the contract.

Conveyancing
Transferring ownership of a property isn’t quite as simple as handing over the cash and taking the keys. There’s a bunch of legal and administration tasks that need to be done beforehand. Conveyancing is the term used to describe these tasks and a conveyancer is the person who carries them out.

Cooling Off Period
Generally, when a buyer signs a contract of sale, they’re legally bound to follow through with the purchase – but there are some exceptions including a ‘cooling off period’. This is a set number of days during which a buyer may be able to cancel the contract of sale after it has been signed. If the sale is cancelled during a cooling off period the buyer may have to pay the seller a termination fee, depending on the contract terms.The rules for cooling-off periods may differ depending on the state or territory and the nature of the sale, but buyer beware, there is generally no cooling-off period when a property is sold via auction.

Counter Offer
Usually made when a property is selling via private treaty, a counter offer is a response to a previous offer. A seller typically makes a counter offer when they’re dissatisfied with a buyer’s initial offer. For example, a property is listed with a price guide of $500,000 and a buyer submits a lowball offer of $450,000. A counter offer could be (from the seller to buyer) the seller asking to bump the sale price up to $475,000 and perhaps also agree to include the washing machine and dryer in the sale. A counter offer might not always be in relation to price, it could also refer to the removal of certain contingencies, inclusions or the length of the settlement period.

Covenant
A property covenant (sometimes referred to as restrictive covenants or a deed of covenant) can guide or restrict how a buyer might build on or alter a property even after they own it. A covenant could refer to how many homes can be built on a block in a redevelopment or simply the type of letterbox used.

Development Application
A Development Application (or DA) is a request for permission to carry out proposed developments usually from the local council. Most developments require two things before construction can commence – development approval and a construction certificate.

Deposit Bond/Deposit Guarantee
Buying a property involves signing a contract of sale. When this is done, a buyer may also need to pay the seller a deposit. If the buyer’s money is tied up in an investment or term deposit then they can get a deposit bond to tide them over. Basically, it’s a substitute for cash that can be used to pay the deposit – just be aware that some sellers don’t accept them.

Depreciation
The decrease in value of a property over time is called depreciation. It is an important tool for investors as it allows them to deduct the costs of buying and improving a property over their ownership of it and, as a result, lower their taxable income in the process. Depreciation starts as soon as the property is placed in service or is available to use as a rental.

Disbursements
These are costs and fees that must be paid during the conveyancing process. For example, the relevant government body may charge a fee to provide a buyer’s conveyancer or lawyer with necessary information about a property’s title. These fees are generally passed on to the buyer and will be in addition to conveyancer’s or lawyer’s fees.

Discharge Fee
There are certain costs involved in discharging a mortgage and usually a lender will pass these on to the homeowner in the form of a discharge fee.

Discharge of Mortgage
Once a home loan has been paid in full, or refinanced, there are certain legal tasks that will need to be performed. If the home loan has been paid in full, the borrower may want the lender’s mortgage notice to be removed from the property’s title.

Drawdown
If a home loan is approved, a lender won’t simply pay the cash straight into the borrower’s bank account for a property purchase. Instead, they’ll release the funds to the seller on settlement day. The release of these funds is known as adrawdown.

Equity
Equity is the market value of a property, minus the amount that a borrower still has to repay on the loan. For example, if the market value of a property is $1 million and the borrower still owes $300,000, then the equity is $700,000.

Easement
The legal definition of an easement is ‘the right to cross or otherwise use a portion of someone else’s land’. An easement may be required to give other properties access to essential services such as water or electricity and to allow neighbours road access to their own property. Easements can also restrict how the land can be developed.

Establishment Fee
Also known as a loan application fee, an establishment fee is to be paid when a home loan is set up by the lender. Under certain circumstances, some lenders will waive such fees, especially in times when they are keen for new business.

Exchange of Contracts
This formal legal process creates a binding contract for the sale of a property on agreed terms. The vendor and purchaser each sign a copy of the sale contract and then ‘exchange’ the documents, after which time the contract is legally binding. The parties are then bound to proceed to settlement, subject to any cooling off period that may apply.

Extra Repayments
A home loan agreement will state the minimum repayments that are required by the borrower each week, fortnight, or month. Payments made over and above this minimum amount are referred to as extra repayments.

First Home Loan Deposit Scheme (FHLDS)
This assistance scheme is a Federal government initiative to help first-home buyers buy a home. Under the scheme, eligible first-home buyers will be able to purchase a home with a deposit as low 5 per cent of the purchase price. The government will guarantee the remaining 15 per cent needed to make up the 20 per cent deposit (the minimum previously required by lenders) thus allowing first-time buyers to avoid pricey mortgage lender’s insurance.

First Home Owner Grant (FHOG)
The government gives eligible first-home buyers a grant to help them buy their first home. Called the First Home Owner Grant, it works differently depending on the state or territory in which a first-home buyer purchases so it’s important that applicants inquire with their relevant state or territory revenue office by visiting firsthome.gov.au.

Fixed Rate
This is a rate of interest for a mortgage that stays the same for a certain period of time regardless of what the Reserve Bank does to the national cash rate. Fixed rates are generally set by the lender for periods of between one to 10 years. It differs to a variable rate, which may go up or down over time depending on market movements in the greater economy.

Gazumping
Yes, it’s a real term. When a vendor agrees to sell a property to an individual for a particular price, but then goes and sells it to another party on more favourable terms. GAZUMPED.

Gifting
When money is gifted to a property-buyer close to purchase time (usually from a family member), a gift letter or statutory declaration needs to be signed by that family member, stating that the money is to be used for the purchase of property and that the private loan is unconditional and does not need to be repaid. The rules around non-refundable gifts state that it needs to be from an immediate family member, which includes de facto, siblings, grandparents as well as parents.

Guarantor
This is a person who agrees to help a buyer (typically a first-home buyer) get a home loan. Generally, they’ll do this by agreeing to take on some of the financial responsibility if the borrower fails to pay off the mortgage. Here’s how it works:A guarantor will often put forward some property as security for the loan and if the first-home buyer defaults on the loan, then the lender has the right to sell the guarantor’s property to recover money still owing.

Interest in Advance
Some home loans let borrowers pay a year’s worth of interest in advance. There may be tax advantages in doing so, depending on the financial circumstances. Generally, this is an option on fixed rate residential investment property loans only.

Interest-Only Repayments
Some loans have the option of an interest-only period in which the borrower repays just the interest charges – and the not any of the principal amount borrowed. This period is generally up to five years. Once the interest-only period has ended, the loan usually reverts to principal and interest repayments – meaning the repayments will increase.

Land Surveyor
Someone who specialises in accurately marking out the boundaries of a property. It’s pretty important stuff – they’re the ones who determine where buildings and fences can legally be built.

Lenders Mortgage Insurance (LMI)
Most lenders won’t give a first-home buyer a home loan if their deposit is less than 20 per cent of the lender-assessed value of the property – but LMI could be a way around the limit. LMI protects the bank or lender (not the borrower) in the event that the home loan is default on and there is a ‘shortfall’. A shortfall happens when the proceeds from the sale of a home are not sufficient to cover the outstanding amount owed. The FHLDS is a way to avoid paying LMI, but only some first-home buyers are eligible.

Loan to value ratio (LVR)
Loan to value ratio (LVR) is the amount a buyer needs to borrow, calculated as a percentage of the lender-assessed value of the property.
The lender-assessed value is the lender’s valuation of the property and may be different to the purchase price. For example, say the lender values the property at $500,000 and the buyer has a $100,000 deposit (excluding transaction buying costs). This means the buyer needs to borrow $400,000 to buy the property. Therefore, the LVR would be $400,000 ÷ $500,000 = 80 per cent

Management Fee
The fee charged by the property manager to the landlord for managing a property, or properties, is known as a management fee. This service typically includes collecting rents, paying recurrent property expenses, selecting and supervising property service contractors such as cleaners and tradies and security. It may also include negotiating new leases, marketing the property, rent reviews and overseeing building renovations.

Market Value
Different to median price, or purchase price, market value is the estimated amount for which an asset should exchange for on the date of valuation between a willing buyer and a willing seller. You can calculate a current market value estimate in the LandingPad app by comparing recently sold properties.

Maximum Loan Amount
This one’s pretty straight forward – it’s the outside limit on how much a lender will allow someone to borrow. A lender will come up with this figure based on various factors, including the borrower’s income, living expenses and other pre-existing debts.

Median Price
The median house price is the middle price of all sales recorded in a particular suburb, postcode, city or state during a specified period in time. For example, if there were 100 sales in a particular suburb, in ascending order, the median would be number 50 on the list. This term is commonly mistaken for ‘average price’, but the two aren’t the same. To calculate an average price, 100 sale prices would need to be added up and then divided by 100 (the number of sales).

Minimum Repayment Amount
This is the minimum amount needed to be repaid on a home loan each week, fortnight or month.

Mortgagee
This is just a fancy name for the bank or lender that’s providing a home loan. They’re called the ‘mortgagee’ because they hold a mortgage over someone’s home. When a lender has a mortgage over an individual’s home, it means they have the right to sell it if the borrower defaults.

Mortgagor
The person (or people) who take out a home loan.

Mortgage
This is a legal term that’s often used to describe a home loan. Under a mortgage, the property purchased is used as security for the amount of money borrowed. This means the lender may have the right to sell the property.

Mortgage Protection Insurance
A home loan is possibly the biggest debt a borrower will ever have, but if a borrower becomes unable to work because of illness or injury they will want to be covered so they can meet the repayments.This is where mortgage protection insurance might help. Depending on the circumstances, mortgage protection insurance may cover some or all of a borrower’s repayments if they’re unable to work.

Negative Gearing
A much-talked about and at times controversial investment strategy, negative gearing is a tax deduction landlords can benefit from at the end of each financial year.. A property is negatively geared if the rental income is less than the mortgage repayments and expenses, meaning that the investor is actually losing money by owning it.

Neutral Gearing
An investor is neutrally gearing an investment property if the expenses involved in owning it are equal to the net rental income it produces. Effectively, a neutrally geared property costs nothing to own.

Offset Account
An offset bank account is one that’s linked to a home loan account. The money in an offset account is effectively ‘offset’ against the home loan balance. For example, if a buyer takes out a $400,000 home loan and then deposits $50,000 into their offset account they will then be charged interest on $350,000 (instead of the full $400,000). This happens for as long as the $50,000 stays in the offset account. An offset feature is generally only available on variable rate loans,but may be available on some fixed rate term loans.

Off the Plan
This means purchasing a property before it’s been built. Because it doesn’t exist yet, buyers can’t inspect the physical property, but are instead buying based on what’s in the plans. This is often described as ‘buying off the plan’. When a purchaser buys off the plan, they are buying the property at the price it is on the day they put down a deposit, not when they move in.

Owners Corporation
See ‘Body Corporate’.

Passed-in
A property is passed in when the reserve price has not been met ‘under auction conditions’ and therefore the property has not sold ‘under the hammer’. This does not necessarily mean the property doesn’t sell on the day of the auction – often, the highest bidder will continue with further negotiations post-auction and the property may sell straight afterwards.

Portfolio
This is the collection of investment properties that an investor has in their name.

Positive Gearing
In the simplest sense, positive gearing is profitable property investing. Income from the property’s rent exceeds outgoings of the property (and other possible deductions). While positive gearing does see the investor earn an income from their investment (unlike negative gearing) they are subject to paying additional tax on that income.

Principal
Simply put, principal is the amount owed on a home loan. Usually, the principal amount gets chipped away with every payment and as a result becomes smaller over time.

Principal and Interest Repayments
Under this kind of repayment, the borrower pays the interest charges, as well as a portion of the principal (amount borrowed from the lender).

Property Value
This relates to how much a property is worth. Lenders often talk about the ‘assessed value’ of a property, which is a lender’s valuation of a property. Valuations are usually done by a valuation specialist.

Redraw Facility
Some home loans let borrowers access the extra repayments they’ve made on their home loan. This is called a ‘redraw facility’. For example:
if a minimum repayment amount on a principal balance is $1000 a month and the borrower pays back $1500 – then that’s $500 extra than the minimum monthly repayment. At a later date, the borrow may be able to access and withdraw the extra $500 (which could have accumulated to $10,000s over the years of extra repayments) that’s already been repaid ahead of schedule. Any amount in a redraw facility will reduce the balance that’s owed to the lender, however the balance will increase if funds are withdrawn from the redraw facility.A redraw facility may help borrowers reduce interest payments, but they’re not available on all home loans. They also may work slightly differently depending on the lender.

Refinance
Also known as as ‘re-fi’, to refinance means to obtain new finance for an asset on different terms. It often involves the paying off of an existing loan by means of a new (and logically cheaper) loan. It is a common process to enable investors to release new capital for new investment.

Rental Yield
This is the return on an investment (ROI) as a percentage of the amount invested. Gross rental yield can be calculated by multiplying the weekly rent by 52 (weeks in a year), then dividing by the (proposed) purchase price of the property and multiplying this figure by 100 to get the rental yield percentage figure.

Reserve Price
The reserve price is the price at which the vendors are prepared to sell their property at auction. The reserve price is a figure discussed in confidence between the auctioneer and the seller and is usually not made public. If the reserve price isn’t met then the vendor is not obliged to sell.

Security
This is an asset that secures a home loan. If a borrower defaults on a loan, the lender has a legal right to sell the asset. In other words, the security gives lenders peace of mind that they will be able to recover their money if the borrower can’t pay back their loan.

Seller’s Market
This is a situation when vendors in a particular market are in the best position to ‘name their price’. This tends to happen when demand for a certain type of property in a particular neighbourhood is high.

Settlement
This is the process of finalising the purchase of a property and then transferring ownership from the seller to buyer. During settlement, the remaining money owed under the contract of sale is paid to the seller. The seller then provides the certificate of title which is updated to include the new owner and mortgagor. Settlement can be complex, so most people have a conveyancer or solicitor helping them out.

Sinking Fund
Think of a sinking fund as a strata scheme’s ‘piggy bank’ of funds to save for a rainy day. This lump of communal savings is added to with each lot owner’s strata fees and should be large enough to pay for significant repairs and maintenance (also known as capital works) to a building over time.

Split Loans
Mortgages can be carved up into two accounts, which are known as split loans. Part of the loan amount will sit in one account, while the rest will sit in another. The reason borrowers do this is to ‘hedge their bets’ in a climate when interest rates are moving (usually upwards).One of the accounts may have a fixed interest rate, which stays the same for the fixed-rate term while the other account may have a variable rate, which may go up and down over time. The rate may change in response to decisions made by the Reserve Bank of Australia, as well as other factors. Fixed and variable interest rates each have advantages and disadvantages so split loan may be a way to get the best of both worlds.

Stamp Duty/Transfer Duty
This is a tax paid to a state or territory government when buying a property. Stamp duty rates are usually tiered based on a property’s purchase price. The higher the price, the more likely a buyer is to pay a higher rate of stamp duty and percentages vary across the states and territories. In some locations first-home buyers are exempt from, or can qualify for reduced stamp duty (stamp duty concession). To find out more, visit firsthome.gov.au

Standard Variable Loan
Such mortgages are variable interest loans if they include various features like an offset account or a redraw facility.

Strata Title
This describes the type of title which is usually associated with units, apartments, townhouses and villas. The owner holds the title to a particular unit which is called ‘a lot’ in a strata plan.

Strata Fees
Strata fees, also called strata levies, are contributions generally paid quarterly to a strata plan’s nominated strata management company. These fees are used to fund the ongoing expenses of the scheme like cleaning, gardening, electricity, building maintenance and plumbing works for the common areas. Strata fees are determined annually by the owners at their Annual General Meeting where they compare expenses from the previous years to form a budget and sinking fund for the year ahead.

Sunset Clause
The sunset clause is a statement in the contract of sale that effectively puts a time limit on the contract’s validity. If settlement has not taken place by the end date included in the clause, both parties are legally entitled to walk away from the contract. In such a scenario, the buyer would receive their deposit back in full.

Title Search
To find out if a seller has a legal right to sell a property, potential buyers can do a title search. When a title search is done, a buyer is not only looking for proof of ownership,but also looking for legal restrictions that may prevent the sale or affect how the property can be used.Title searches are usually done through the government body that registers property ownership in a state or territory and buyers will usually have a conveyancer or lawyer do the search on their behalf.

Torrens Title
A Torrens title property is where the purchaser owns both the house and the land on which it is built, unlike a strata-titled property. Under the Torrens system, dealings and ownership of land are managed by registration with the Titles Office.

Vacancy Rates
This percentage figure measures how many dwellings are available for rent over a specified time period, in a particular location. A low vacancy rate means there are not very many homes available for rent, (which is typically good for investors) while a high vacancy rate means there are plenty of rental properties available (which is typically not so good for investors).

Valuation
This is an assessment of a property’s value. It is important to not to confuse ‘valuations’ with ‘appraisals’ as they are not the same thing. Valuations are usually done by a licensed property valuer while appraisals are often done by real estate agents.

Variable Rate
This Type of interest rate can go up or down over time depending on market movements and the discretion of the lender. Having a variable rate home loan means your repayments can change over the life of the loan.

Vendor
A vendor is the person who is selling a property and is actually the same thing as a seller.

Vendor Statement
There’s only so much a buyer can know about property by just looking at it and that’s why vendor statements are important. As the name suggests, this is a statement made by the vendor and it includes information a buyer may want to know before signing a contract of sale. The statement usually includes details on any legal restrictions on the use of the property – but it may be slightly different depending on the state or territory. The vendor statement covers certain information including mortgages, covenants, easements, zoning and outgoings. Vendor statements are often a legal requirement, depending on the circumstances. When buying or selling a house, it may be a good idea to have a conveyancer or lawyer looking after the paperwork. They’ll be able to provide advice on the vendor statement and the buying process in general.