If you’re new to the real estate market it’s not surprising to be a little overwhelmed by some of the terms and phrases that you are hearing. Many steps in the process are legally binding – so it is important to have a full understanding of the real estate jargon.
Our team here at Ouwens Casserly have put their heads together and collated some of the common phrases for you to gain a clearer understanding of what they mean.
1. Settlement
This is the day your conveyancer hands over the agreed funds to buy the property (minus the deposit already paid) and the property is transferred to the new owner.
2. Cooling-off Period
The cooling off period is the period of time given to the purchaser by law to decide whether the property is right for them. It is a 2 business day period and it cannot be extended under any circumstances. It commences once you receive the second of these two documents: executed contract or Form 1 document. Generally, once the cooling off period expires, your deposit is due. There is no cooling off period whatsoever when you buy at auction or under auction conditions.
3. Certificate of Title
The Certificate of Title is referred to as a deed to a property. Whoever is noted on this document is the owner of the property and the only person(s) who can make decisions about this property. It also notes items of relevance (ie. ownership, reference numbers, mortgage, lien, easement, encumbrance, etc.) and if they are noted on the title, it is called a “registered dealing”. There is generally a cost associated with any registration of a dealing on a title.
4. Conveyancer
A skilled and qualified property professional who is employed to represent each party in the sale: ie. purchaser and vendor. A conveyancer should be registered with the appropriate bodies to work on your behalf. They prepare documents such as a memorandum of transfer, memorandum of encumbrance, discharging of mortgage, booking in the settlement, etc.
5. Discharge of mortgage
This document is prepared by a conveyancer when there is an “outgoing mortgage”. This occurs when the person selling the property has a mortgage over that property. The discharge document pays out the bank. Only an original document can be accepted (no scanned copies).
6. Memorandum of mortgage
This document is prepared by a conveyancer when there is an “ingoing mortgage”. This occurs when the person buying the property has applied to a bank to fund the property. This document registers the mortgage to the new owner’s bank on the Certificate of Title, as a part of the transfer process. Only an original document can be accepted (no scanned copies).
7. Memorandum of transfer
This document is prepared by a conveyancer to transfer the ownership of the property on the agreed settlement date. Both parties need to sign this document and it is facilitated via each party’s conveyancer. This document is lodged to the Land Titles Office (LTO) to register the transfer. Only an original document can be accepted (no scanned copies).
8. Stamp Duty
This is a compulsory government tax, payable on the transfer of a property. It is payable by the purchaser. It is generally about 5% of the total purchase price of the property. It is an additional charge, on top of the purchase price, the deposit, and other associated costs. Check the government website for any stamp duty exemptions.
9. Power of attorney
A Power of Attorney document is prepared by a lawyer on behalf of a person(s). It stipulates a nominated person or persons who can sign on behalf of someone else. There are many cases where this is used in real estate- for example, when an elderly person is being moved into care and they have nominated their child to sell their property for them, the nominated child can sign the contract on behalf of their parent. This document will state when/where the nominated person(s) can sign (not all Power of Attorney documents can be used in real estate transactions).
10. Waiver of cooling off
A waiver is a document that forgoes something. The most used waiver in real estate transactions is a Waiver of Cooling Off Rights. In this scenario, a prospective purchaser will sign a contract, Form 1, and waiver document in the presence of a lawyer/solicitor. The lawyer/solicitor explains the legal implications of doing so, and what their rights are. There is a cost involved- generally, 1x the cost of the waiver and 1x the cost of the solicitor’s time.
11. Special Condition / Subject to….
A special condition is an item that needs to be satisfied on/prior to settlement. If this item does not occur, one/both of the parties may pull out of the contract. For example, if you’re buying a property subject to finance, you need to apply to a bank to receive a loan. If they respond with a decline, you are unable to satisfy your condition of the contract and so the contract cannot continue. There are many legal obligations and responsibilities surrounding special conditions and “subject to” clauses, so it is best to discuss this with a professional.
12. FHOG
This is the acronym for the First Home Owner’s Grant. It is a government concession, currently available to new homes only (build contract). It is a rebate payable to you by the government. You need to fit certain criteria to apply for the grant. Visit the relevant website for more information.
13. Settlement statement (adjustments)
A Settlement Statement is a document prepared by a conveyancer which details the “end result” of the purchase. It notes items such as the purchase price from your contract, the deposit already paid, any adjustments for rates/taxes on the property (ie. water rates, council rates, etc.), the conveyancer’s fee, any agent’s commissions, etc.
14. Finance Broker
A Finance Broker is a trained and licenced professional who assesses your financial situation and applies to banks on your behalf for a loan. Generally, a good broker will discuss your situation, obtain some personal information from you, find a number of finance options to suit your needs and present you with the options to discuss. Ultimately it is your decision which bank you apply to for the transaction. Finance Brokers are paid a commission from a bank and there is generally no cost to you.
15. Vendor
A Vendor is the owner of the property.
16. Purchaser
A Purchaser is a person who is under contract to buy the property.
17. Form 1 (aka. Vendor’s Statement)
Form 1 is the legal document that supplies all the information which is required to be provided by the current owner to the purchaser. Form 1 must strictly comply with the relevant Act. It includes a copy of the current Certificate of Title, SA Water information, any encumbrances or encroachments, council rates, and anything else that is legally required or may affect the property. Form 1 needs to be prepared by an adequate Form 1 provider for the security of the vendor. The vendor is required to sign off on the accuracy and completeness of Form 1.
18. Easements
An Easement is a physical article that encumbers the property. Depending on what it is and where it is located, it may/may not affect the usability of the land. An example of an easement is a water or sewer pipe running underneath the land. An easement must be accessible at all times.
19. Encumbrance
An Encumbrance is an agreement that is registered on the title that affects the use of the land. Encumbrances are seen in new land estates or established properties that were part of a larger development.
20. Right of way
A Right of Way is the term used to note on a title that there is an access point on the property. A Right of Way notes someone else’s access point that crosses your property.
21. Lien (or Caveat)
An Lien, also known as a Caveat, is a dealing registered on the title that notes someone’s right to claim a debt against that property. For example, if there is a lien on the property when the property is sold the person who registered the lien gets the debt paid out before the final proceeds of the sale go to the vendor. Sort of like how a mortgage gets discharged.
22. LMI (Lender’s Mortgage Insurance)
LMI is an insurance policy that protects the lender if you are unable to meet your loan commitments, they subsequently have to sell the property, and there is a shortfall between the sale proceeds and what’s owing on the loan. Lenders generally can put about 80% of the sale price back to paying off the loan once all of the other costs are covered, so if you need to borrow more than 80% of the value of a property at the time you’re buying it, it’s likely that your lender will require you to take out LMI. It is usually applied as a once-off cost on top of the base loan amount you need to complete the purchase and then repaid as part of the regular loan repayments.
23. Probate
Probate is the legal document that entitles you to sell a property on behalf of an estate. This is different to a will. The will nominates who is to be the executor(s) of the estate. It is those nominated persons who apply for Probate. Only once Probate is granted can you sell the property on behalf of the estate. There are special conditions included in a contract in the event Probate has not yet been granted.
When you find the house of your dreams or the right investment property for your portfolio – always be sure to ask your agent if there are any terms you are unclear on.
Ouwens Casserly Real Estate agents undergo weekly training to ensure they are up to date with the latest in contractual obligations.
