Understanding Real Estate Lingo
Aug 6, 2020
Written by Gary Antulov
I am frequently asked to explain the meaning of some real estate terms, so I thought it may be beneficial to document them online.
We see and hear certain terms pop up in reporting, in print, online via social media in property news. We also see REIWA using these terms in media releases. WA has seen several changes in legislation as a response to Covid-19, but also the introduction of Strata Title reform that came into effect 1 May 2020.
OPTION TO BUY – This is a legal binding document that gives the person the right to buy something, usually within a set period at a specific price in writing and signed.
VENDORS – A term also used for the Seller/s of the property.
TITLE – A document that is evidence of ownership. A person’s right to the land. In WA the most common form of Title is Strata and Green. However, there can be a Company Title and Purple Title.
STRATA TITLE – This means you need to comply with the Strata Titles Act 1985. Strata Titled properties can include built strata with or without common property or survey strata with or without common property.
STRATA COMPANY – A strata company is all the lot owners. Upon registration of the scheme, a strata management company automatically comes into existence
GREEN TITLE/FREEHOLD TITLE – A Green Title or Freehold title property refers to land that generally has no common areas needing to be shared unless otherwise indicated on the certificate of title, but normally is completely independent of its neighbouring lots – the registered Owners have total autonomy. It originally got its name from the paper that was shaded in green. Now all titles are digital.
PURPLE TITLE – After the end of the Second World War there was an increase in several multi-story residential properties but there was no legal system available to divide the building up and create separate titles. To overcome this issue the Ownership was transferred to a company whose rules provided that the holders of company shares were entitled to occupy specified parts of the building. Ownership was secured by relying upon shareholding rather than title to land. This ownership is now often referred to as “Purple Tile”.
SURVEY STRATA – Side by side lots. Typically, this involves an existing large green title lot being formally surveyed into smaller subdivided lots with distinct boundaries. The subdivided lots are created under the Strata Titles Act and are known as ‘survey strata’. The right and obligations of survey strata are essentially the same as the green title which is important to know. Some of these survey strata developments can have common driveways and all owners in the survey scheme will contribute towards the insurance and maintenance of that common property that has a separate lot number.
ZONING – Local authority guidelines as to the permitted use of the land
SUBDIVISION – Subdividing is a process of dividing a single piece of land into two or more pieces that have their own titles and each new land will become a separate dwelling.
BATTLEAXE – Subdivision (House behind house), a division that creates a rear property with side driveway access. Side by Side (duplex), a lengthwise division allowing two homes to have street frontage. Multi-unit, anything over two dwellings including a triplex or quadruplex.
R-CODES – Stands for “Residential Design Code” and essentially controls the quantity and type of residence/s that can be built on a certain home site, for example, if a property is coded R30 and is 683sqm in size, then 2 dwellings could potentially be constructed on that property.
MEDIAN PRICE – The mid-point for a range of property values that are ranked from the lowest to the highest in price, for example, if there are 5 sales ranked from the cheapest to the most expensive the medium is sale number 3. REIWA uses the median price as a better way to gauge the market rather than using the average price which can easily be skewed by a bigger number of high or low sales prices.
VACANCY RATE – The proportion of rental properties that are unoccupied. A high vacancy rate is a lot better for tenants giving them a lot more choice. A low vacancy rate means things are tight and its by-product is that it will put upward pressure on rents. The vacancy rate can be used to indicate if the overall supply of housing is meeting demand or not as well.
CAPITAL GROWTH – The increase in the value of a property. The capital gain is the difference between the purchase price plus buying costs and the selling price fewer costs, this is used primarily for income tax calculations.
INVESTMENT RETURN – It is the combination of capital growth and the net income derived from property ownership.
GROSS RENTAL YIELD – An equation that all good agents and good property managers use to compare rental returns. It is calculated by dividing the annual rental by the price of the property and then multiplying that result by 100. This can help you compare the rental yields from different properties with different values. The rental yield tends to go down as the price of properties rises. Investors are always looking for a higher gross rental yield.
CAPITAL GAIN – This is money gain obtained when an asset is sold by you for more than you bought it for.
SETTLEMENT – This is where the buyer pays the balance of the purchase price and becomes the new legal owner of the property, the settlement period is usually around 6 weeks after the offer is signed out by both parties, however, this can be changed to meet Buyers/Sellers individual situations.
OPEN NEGOTIATION – This is a method of sale, in simple terms an online Auction. Property is sold under Auction Terms Means the process set out in terms according to which the sale is to be conducted using an app in an online bidding process.
PRIVATE TREATY – This is a method of sale, it’s where the property has an asking price and is sold by negotiation.
RESERVE PRICE – The minimum price the vendor will sell the property at an auction. Once the reserve is met the property is deemed to be on the market and the Auctioneer has the authority to sell under the hammer.
PASSED IN – When the property fails to sell at auction and is passed in with no sale. Often the negotiations begin with the highest bidder.
MORTGAGEE – The lender of money for a mortgage.
CAVEAT – If a caveat is lodged upon a title of land or home, it warns the person buying the property there is another third party claiming in on it or they have an interest in the property. The caveat will need to be removed before the property can settle.
ENCUMBRANCE – A mortgage, easement, restrictive covenant, title restriction, caveat, and rate encumbrance and includes any right and interest which another person has in relation to the property.
CHATTELS – Moveable possessions that can be included in the sale by agreement, normally fixed items remain at the property on settlement e.g. light fittings, floor covering, blinds, curtains, window treatments, dishwasher or pool equipment.
CONTRACT DATE – This is the last date on which the last party signs the contract.
CONTRACT OF SALE – This is the written contract detailing all items and conditions of the sale of the property. The contract will be specific for the time of the settlement and special conditions like the deposit required.
JOINT TENANTS – A type of Ownership form of co-ownership that gives each tenant equal shares and rights in the property including the right of survivorship, e.g. ownership of a property to the surviving owners.
TENANTS IN COMMON – A type of Ownership of 2 or more Buyer/s which indicates the shareholding of each person’s interest. If a person, shares pass to his or her beneficiaries under the terms of the will.