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Buying Property - Terminology You Need to Know

 

Buying a home can be confusing when there is a lot of new terminolgy being thrown around that you do not understand.

We have compiled this list of property terms that you may come across, and are not sure what they mean. 

 

Body Corporate

Now correctly known as the Owners’ Corporation, this is the body that runs a strata plan. All lot owners within the plan are members and entitled to nominate as and elect members to an Executive Committee which makes decisions about the management of the strata property.

Capital growth

The capital growth of a property is used to describe the increase in its price or value. For example, if the median house price calculated on a certain suburb in the March quarter of a particular year was $510,550 and in the March quarter of the previous year the median price for the same area was $405,500, the capital growth of that area is the difference between the two. Capital growth is also often referred to as capital appreciation where the property has appreciated in value.

Certificate of Title

A document identifying the ownership of land. The document shows the location, volume and folio numbers of the property and current ownership. The title may also show any easements, mortgages or other third party interests in the land. The original certificate of title is held by the Land Titles Office with an official duplicate held by the owner of the land or the mortgagee (such as a bank) if there is a mortgage over the land. Each time a property changes hands, the name of the new owner is registered on the title.

Common areas

The areas within a building which can be used by all owners and residents. These usually include the foyer, stairs and lifts, hallways and grounds, although there may be other amenities like a common laundry, pool, gym and rooftop area.

Common walls

Boundary walls between a dwelling and a common area.

Community title

This title is most common in large apartment developments with multiple buildings where each has an individual strata title but share facilities like grounds, roadways, basements, barbecues, gyms and pools. The community plan levies each of its strata plans for a contribution to the upkeep of these areas and in turn, the strata plans include those fees in its levies to owners. 

Consideration

In a real estate purchase contract, the consideration is usually the price paid by the purchaser in exchange for the property.

Conveyance

The process of transferring the ownership of property from the developer / sales agent to the buyer’s name.

Cooling-off period

In NSW, the standard cooling-off period is 5 business days from date of signing the contract. In Victoria, the cooling-off period is 3 days. In this time, a property buyer (but not the seller) may withdraw from the purchase. Contracts may be exchanged with the buyer waiving the cooling-off period. This may give buyers more negotiating power but it means all due diligence must be undergone before contracts are exchanged. A waiver should only be arranged by your solicitor. 

Deposit

The standard deposit on residential property transactions is 10 percent of the purchase price. Most developers or selling agents require the buyer to provide this (generally by cheque or electronic funds transfer) as part of the exchange of contracts. The deposit is generally held in trust by the developer/agent. The amount of deposit may be varied by negotiation between the parties and is often done for high-value transactions.

Development Application

A Development Application (DA) is the process of applying to the local council for required approvals for the development of a property, from exterior and structural changes, to demolition and rebuild and particular uses. Requirements and guidelines vary between councils.

Exchange

When a developer / selling agent and a buyer provide each other with a signed copy of the contract and at which they become bound to the transaction. A buyer’s offer or a selling agent’s acceptance of an offer is not binding on either party until the contracts are exchanged. A deposit of 10 percent of the agreed purchase price for the property is usually required at the time of exchange.

Gross rental yield

The gross rental yield on your property is used to compare the investment return. To calculate your gross rental yield you divide the rental income you receive in a year by the property’s purchase price.

 

Improvements

Any building on the land is considered an ‘improvement’ on the land.

Inclusions

The items to be included in a property purchase. Some may seem obvious, but they should be specified in the contract. Standard inclusions are often items such as blinds, built-in wardrobes, curtains, dishwasher, fixed floor coverings, light fittings, range-hood and stove. Clothes dryers are also usually included, although washing machines rarely are.

Investment return

Investment return is the percentage of change in the value of your investment over a period of time. It is determined using similar calculations to capital growth. Working out your investment return will help you determine how much your investment property is increasing in value and how it may continue to increase.

Levies (strata fees)

The fees that owners in a strata plan must pay to the Owners Corporation for the management and upkeep of the building and common property. Levies are generally payable quarterly and are allocated into the Admin and Sinking funds. Strata levies vary considerably from one building to another and generally reflect the buildings facilities and condition.

For example, items that contribute to costs include lifts, gyms and pools. Concierges are very expensive. High levies may also point to major problems with building maintenance. Levies are usually between $400 and $800 per quarter. Special levies are sometimes required by the Owners Corporation to cover extraordinary expenses such as major building works, particularly when there isn’t enough money in the Funds to pay for those.

Rates

The amount charged by the local council or water authority to provide services to a property.

Search (title)

The process of investigating or examining title of land to ascertain if the developer / sales agent has the right to transfer ownership. A title search reveals the names of the owner and other precise details of the property, like the existence of any restrictive covenant, encumbrance or caveat on the title.

Mean value

The mean price of property values is the average value. It is calculated on the total of the list of sales, divided by the number of sales on that list. The mean house price can often be significantly skewed by a sale which was exceptionally high or low and so does not always depict a typical house price.

Median price

The median price is the middle price in a series of sales. In other words, half the sales are of a lower value and half are of a higher value. The median price provides a more transparent reflection of the overall state of property sales than estimating the equivalent average price, because averaging is affected by individual properties sold at significantly higher or lower prices.

Calculations of median property prices are usually conducted over a three month period or a full calendar year. They may also be broken down further into the upper and lower quartile to enable an assessment of the top or bottom 25 percent of sales.

Median value

The median value indicates that one half of a group of properties is higher and one half is lower. Don’t confuse median with mean (or average) value. The median and mean may be distinctly different depending on the group of properties being assessed. If property prices in a particular area are evenly distributed, the median and mean may be similar, but not if the prices are skewed to one or other end of the spectrum.

Owners’ Corporation

This is the body that runs a strata plan. All lot owners within the plan are members and entitled to nominate and elect members to the Executive Committee which makes decisions about the management of the strata property.

Service facilities

Areas that contain utilities, pipes and conduits, and all associated mechanical and other services need to keep the building operational.

Settlement period (completion time)

The point at which the transaction for a property purchase is completed and the new owner takes possession.

Special conditions

Conditions added to the standard sales contract. Many of these are so common now that they are called ‘standard special conditions’.

Strata title

Most apartment buildings in Melbourne and Sydney are strata title, which simply refers to the subdivision of the land and buildings into individual lots that are owned and can be traded independently. When you buy a strata title apartment, you own the space defined by the walls, ceilings and floors.

Sunset clause

A sunset clause is a section within a sales contract that enables the developer or builder to achieve a certain level of presales and also gives you, as the buyer, a date when you can legally walk away from the contract and retrieve your deposit if the developer and/or builder doesn’t deliver a completed project on time.

It is important to fully understand all the obligations set out in a sunset clause. For example, it is possible that a contract with a sunset clause can lead to the contract being terminated before the settlement date. In such instances, some developers may try to resell the same property to you at a higher price after the contract expires.

Vacancy rate

The vacancy rate is the number of vacant rental properties that a real estate agency has available, divided by the number of rental properties they have.

For example, if an agency has 100 rental properties and 10 are vacant in their vacancy rate is 10 percent. It is important to note that the vacancy rate does not take into account the types of properties which are vacant so the vacancy rate can differ depending on whether you are looking for an investment unit or a five bedroom investment house. However, knowing the vacancy rate can indicate whether an area has high rental demand or is oversupplied with investment properties.

 

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