Real Estate Glossary

auction The public sale of a property to the highest bidder.

bear market A market with falling prices. A bear claws prices down.

blue-chip shares The shares of large, well-established companies that have a strong history of paying dividends.

bull market A market with rising prices. A bull tosses prices up.

buying off the plan Entering into a contract to buy a property, usually an apartment, before it has been built.

Buying Zone When the market is having a sale and market value is less than intrinsic value. This is the only time you should be buying real estate.

contract of sale A written agreement of the terms and conditions of the sale of a property.

contrarian An investor who does the opposite of what most other investors are doing, such as buying when others are selling.

conveyancing The legal process of transferring the ownership of a property.

cooling-off period The statutory period after exchange of contracts where the buyer can cancel the contract unconditionally for a small penalty.

cross-collateralisation When two or more properties are used as security for a loan.

debt service ratio The measure of a borrower’s ability to service a loan, calculated as the ratio of loan repayment to serviceable income (a percentage of salary and rent).

deposit bond A guarantee that the deposit will be paid atsettlement (for an off-the-plan purchase).

depreciation The write down of the original cost of the building, capital works or fixtures and fittings by a specified percentage each year to reflect wear and tear.

development application The application to council for consent to carry out development.

diminishing value method The depreciation of a constant proportion of the remaining value of the item each year.

dollar cost averaging The investing of equal amounts of money at regular intervals (in shares and managed funds) to reduce the average cost by acquiring more

shares/units in periods of lower prices and fewer shares/units in periods of higher prices.

dual occupancy Two dwellings on one lot.

duplex A single building on one lot that is up to two storeys in height and contains two attached dwellings.

easement The right to use someone else’s land for a specific purpose, such as a government authority running mains, drains and water pipes through private property.

exchange of contracts The vendor and purchaser each sign a copy of the contract of sale and then exchange these documents to enter a legally binding contract.

exclusive listing When only one agent is appointed to sell or lease a property.

fittings The items attached to a property, such as light fittings.

fixtures The items fixed to a property, such as kitchen cabinets.

flip To buy a property and quickly sell it.

for sale by owner (FSBO) A real estate sale without an agent.

gazumping When the vendor verbally agrees to sell the property to one party, but then sells the property to another party on more favourable terms.

hedge An investment that cancels out the risk, and return, of another investment.

intrinsic value The long-term value of a property based on the net present value of future cash flow.

lease option A lease with the option to buy the property. Note that both the selling price and the rent are significantly higher than what you can get in the marketplace.

lenders’ mortgage insurance Insurance that protects the lender if the borrower defaults on the mortgage and the property is sold for less than the outstanding amount on the loan. The borrower remains liable to the mortgage insurer for the amount it has to pay the lender.

loan-to-valuation ratio (LVR) The ratio of the loan to the value of the property securing the loan.

low documentation (low-doc) loan A loan for borrowers who cannot provide proof of income to qualify for standard loans.

magnification ratio The ratio of the value of a property to the value of the deposit. It measures the extent of leverage and risk.

margin of safety The difference between the intrinsic value of a property and its market value. When you buy a property at a discount to its intrinsic value, you build up a buffer against future adverse returns.

mark to market To assign a value to an investment based on the current market price for that investment.

market value The price, or value, ascribed by the market of a property. Where a property is untraded, it is estimated as the amount a willing and knowledgeable buyer would pay to a willing and knowledgeable seller for the property in an arm’s length transaction.

median price The middle price when prices are arranged from lowest to highest; it is the representative price in an area.

multi-listing When more than one agent is appointed to sell or lease a property.

negative cash flow When the rent plus tax credit does not cover all cash expenses and interest and you have to put money into the property.

negative gearing When the rent does not cover all the expenses and interest and you make a loss on the property.Negative gearing can be with negative cash flow or positive cash flow.

opportunity cost The cost of pursuing one course of action in terms of the foregone return that could have been earned on an alternative course of action.

owners’ corporation The body comprising all the lot owners in a strata scheme that administers, manages and maintains the common property. It was formerly known as the body corporate.

passed in Not sold at auction because the bidding did not reach the reserve price of the property.

piggyback The use the available equity in an existing property as a deposit for a new property.

positive cash flow When the rent plus tax credit covers all cash expenses and interest and the property puts money in your pocket.

positive gearing When the rent covers all the expenses and interest and you make a profit on the property. Positive gearing is always with positive cash flow.

prime cost method The depreciation of a fixed amount over the effective life of the item each year.

private treaty The sale of a property through private negotiation, usually via a real estate agent.

rescind To cancel a contract.

reserve price The lowest price at which the vendor is prepared to sell the property at auction.

Selling Zone When market value is greater than intrinsic value (the opposite of the Buying Zone). If you have to sell a property, this is the time.

setback The distance of the building from a boundary.

settlement The final stage of the buying process when the buyer pays the balance of the contract price to the vendor and takes legal possession of the property.

standard variable interest rate The banks’ reference rate that applies to fully featured loans.

strata levy The quarterly contributions paid by lot owners to the owners’ corporation in strata schemes to fund ongoing maintenance and recurring expenses (administration fund), and major maintenance

expenses and expenses of a capital nature (sinking fund). There are also occasional special levies to fund unplanned expenses.

strata title The ownership of a ‘unit’ of a property (block of apartments, townhouses, and so on) based on the subdivision of the property into lots and common property. The lots (apartments, garages, and so on) are owned by the owners, and everything else is common property (driveways, gardens, stairs, and so on) that is owned by the owners’ corporation, which comprises all the lot owners.

subdivision The division of a parcel of land according to council approval into separate lots, each with a separate title.

Torrens title The ownership of land by registration with the Land Titles Office.

two-tier marketing Selling real estate to out-of-area investors for a higher price than the locals.

vacancy rate  The number of vacant rental properties as a proportion of the total number of properties available for rent.

variation The addition to, deletion from, or alteration to a building contract.

wrap A form of vendor financing where the vendor sells the property and provides financing to the buyer. Note that both the selling price and the interest rate are significantly higher than what you can get in the marketplace.