19 Tricky Property Terms Buyers Should Know
If property isn’t your full-time job, you’re bound to hear agents, lawyers and other property professionals use terms you’re unfamiliar with. Don’t let the jargon confuse or intimidate you.
Below are 20 tricky terms that it’ll stand you in good stead to know.
Definition: In the event the property is damaged, rent abatement is the provision that allow the tenant to suspend paying rent until the property is repaired by the landlord and the tenant can resume operations.
Definition: The rate at which available homes are sold in a specific property market during a certain time period. Absorption Rate is calculated by dividing the average number of sales per month by the total number of available homes. It’s a good one to keep an eye on when buying and selling property.
Definition: A balloon payment mortgage is a mortgage which, if not fully paid back over the term, is due in full at the last payment. The last and final payment is nicknamed a balloon payment because it can be significantly larger than the others. Balloon payment mortgages are more common in commercial real estate than in residential real estate.
Buyer’s Agent (vs Listing Agent)
Definition: Buyers' agents are licensed professionals that represent buyers of residential and commercial real estate. A Buyers’ Agent specialises in searching, evaluating and negotiating the best possible price on behalf of the buyer. They do not sell real estate. The key difference between a buyers’ agent and a traditional selling agent is who they represent. A buyers’ agent works exclusively for the buyer, whereas the selling agent works for the vendor (seller). By law an agent cannot act for (and accept a commission) from both parties in the transaction.
Definition: In a nutshell, a bridge loan is a short-term financing structure that helps buyers to "bridge" the gap between old and new mortgages by allowing them to use the equity in their current property as a down payment. This loan essentially allows the individual to own two properties at the same time, while they wait for the sale of their existing home to go through.
Definition: A caveat is a legal order that prevents the registration of particular dealings with property. A caveat acts as a warning or formal notice to tell the public that there is an interest on the land or property for a particular reason. The party who lodges a caveat is known as a caveator. Once lodged, caveats stay in place until they are formally withdrawn, lapse, removed by court order or the caveator consents to the dealing in writing.
Definition: A cession deed is used to give up property rights to a government authority.
Definition: Cross-collateralisation is a term used when the collateral (the borrower's pledge of specific property to a lender) for one loan is also used as collateral for another loan. If a person has borrowed from the same bank a home loan secured by the house, a car loan secured by the car, and so on, these assets can be used as cross-collaterals for all the loans.
Definition: Cluster zoning is when development density is determined for an entire area, rather than on a single property basis. Within the specified cluster zone, a developer generally has greater flexibility, as long as the total density requirement is met.
Comparables (Comps) or Comparative Market Analysis
Definition: A comparative market analysis (CMA) is a document prepared to help set the selling price of a home by comparing it to recently sold homes in the same area.
Definition: A fixed interest rate loan is a loan where the interest rate doesn't fluctuate during the fixed rate period of the loan. The opposite are variable rate loans, which change according to the prevailing discount rate.
Adjustable Rate Mortgages
Definition: A variable-rate mortgage, adjustable-rate mortgage (ARM), or tracker mortgage is a mortgage in which the the interest rate regularly adjusted based on the cost to the lender in changing credit markets.
Definition: An amortization schedule is a document which outlines the amount and rate of the loan payments, showing the amount of principal and the amount of interest that make up each payment until the loan is paid off.
Definition: When buyers make an offer on a property, they will pay a sum that will be placed in “escrow” (or in a trust account). It means that the money isn't going directly to the seller but is being held by a third party until the buyer and the seller agree on a contract and close the deal.
Definition: A claim against, limitation on or liability against real estate is an encumbrance. An encumbrance can restrict the owner's ability to transfer title to the property or lessen its value. For example, liens, deed restrictions, easements, encroachments, and licenses.
Definition: In real estate, this term is typically used when an offer on a home has been made and the seller has accepted it, but the finalised sale is ‘contingent’ upon certain criteria being met. For example, these criteria are very often related to the appraisal, home inspection and mortgage approval.
APR (Annual Percentage Rate)
Definition: The term APR (annual percentage rate) refers to the annual rate charged for borrowing or the annual rate earned through an investment. It is expressed as a percentage that represents the actual yearly cost over the full term of a loan.
Definition: A holdover tenant is a renter who does not leave the property after the expiration of the lease. If the landlord continues to accept rent payments, the holdover tenant can continue to legally occupy the property, and state laws will determine the length of the holdover tenant’s new rental term.
Definition: A suspensive condition is a condition which suspends or freezes rights and obligations until the uncertain future event occurs. Upon the occurrence of the ‘future’ event, the suspended part of the contract (or indeed the entire contract) is then unfrozen.