Real Estate Terminology The following is provided to assist property purchasers understand terms associated and often used by the Real Estate Industry, Legal advisors and Loan institutions. It is not intended to be relied upon for legal or contractual agreements. ASSET : a major item that you own e.g. car, boat, house. ACCEPTANCE : agreement by the other party to the offer. BANK ESTABLISHMENT FEE : This is a "one off" fee that the bank will charge to cover the cost of processing your mortgage application and preparing the relevant documentation. It also goes towards the cost of administering the loan for the term. Normally this fee is 1% of the loan amount e.g. $120,000 Loan, Administration Fee $1,200.00 CAVEAT : a notice registered on the title which shows that someone claims interest in the property. Often used by banks to provide security for personal loans. CERTIFICATE OF TITLE : the legal title of ownership deed to a parcel of land. CHATTELS : items which are normally extra to the basic house but included in the sale. These usually include: stove, floor covering, curtains, light fittings, etc. CONDITIONAL CONTRACT : a contract which is subject to specified conditions being fulfilled (e.g. confirmation of finance) before it becomes unconditional. CONFIRMATION : the date when finance and any other conditions under the contract are to be confirmed. The contract then becomes "unconditional" and binding. COUNTER OFFER : if an offer to buy is declined, a counter offer with new conditions may be made by the vendor. CONVEYANCING : the legal procedures associated with the transfer of ownership of property from seller to buyer. CROSS LEASE : ( or composite title) this was developed in New Zealand law to permit multi-unit developments, generally on smaller parcels of land. Usually, two or more persons own an undivided share (e.g. half share if two flats) in the fee simple or freehold. Each person also has a specific right to occupy a particular part of the land including the dwelling and any outbuildings by way of lease. DEBT SERVICING : this normally means total regular outgoings when servicing a loan(s). It may be expressed weekly, monthly or annually and can be related to income to provide a Debt Servicing Ration (DSR). DEBT SERVICING RATIO (DSR) : this is expressed as a percentage (%). Total annual mortgage repayments against total annual income. The banks that use this method to determine serviceability generally consider 25-30% acceptable. DISBURSEMENTS : payments made by solicitors on behalf of clients e.g. City Council inquiries, registrations, agency fees. EASEMENT : right of others to use a property for defined purposes, such as rights of way and drainage. ESTATE IN FEE SIMPLE : in layman's terms, this means to own the "freehold" interest in the land on which your property is built, as distinct from a "leasehold". ESTATE FOR LIFE : means to have a life interest in and such an interest is usually created by a trust or a will. Evidence of such an interest cannot be noted on the Certificate of Title and only the life tenant who feels at risk may lodge a caveat to protect his position. EQUITY : this is the amount you own in a property. It may be expressed in dollar terms or as a percentage e.g. if your property is valued at $100,000 and you owe the bank $70,000 then your equity is $30,000 or 30%. INTEREST : this is where the lender makes their income. It is normally a pre-calculated cost for the loan of a sum of money. Interest may be calculated at different frequencies. Most mortgages today have interest calculated on a daily basis. FREEHOLD : referred to on your title as "estate in fee simple" and "life estate". In brief terms this means you have absolute ownership of the property, land and dwelling. The land is "freehold" but the property may still be mortgaged. GOVERNMENT VALUATION : is the value the Government considers your property to be worth. In most cases this can only be used as a 'guideline' as Government Valuations are only done every three years and the accuracy is normally insufficient for bank lending purposes. LEASEHOLD : referred to on a title as "Estate for Years". The owner of the freehold leases the land to you for a set term. A lease will usually include a provision for revaluation of the land and rental at the time of renewal. LEGAL DESCRIPTION : normally includes a Lot number, Deposited Plan, and Certificate of Title numbers; e.g. Lot 5 DP 9288 Certificate of Title 22/965 LIABILITIES : debts that you may have e.g. bank loans, what you owe on credit cards and hire purchase. LOAN PROTECTION INSURANCE (LPI ): this could be best described as an extension to Mortgage Repayment Insurance. This is a comprehensive Insurance policy taken out by the borrowers to cover against death, total and permanent disablement, accident and sickness, redundancy and bankruptcy. Naturally, with more extensive cover, the cost of this policy is more than a basic Mortgage Repayment Insurance policy. Premiums may be paid monthly. LOAN VALUE RATION (LVR) : also referred to as Loan Security Ratio (LSR) is, as its name suggests, the ratio of borrowing against the value of the property. LOW EQUITY FEE (LEF) : refer mortgage indemnity insurance. MEMORANDUM OF TRANSFER S: the document which records and gives effect to the transfer of a property from seller to buyer. MORTGAGE : a mortgage is a loan for the purchase of property in which the property itself is pledged as security. Most mortgages are registered by the lender and an endorsement to the same effect is made on the Certificate of Title showing that money is owed. MORTGAGEE : the Lender e.g. The Bank MORTGAGOR : the Borrower e.g. You MORTGAGEE SALE : in the event of a borrower not meeting the bank's mortgage repayments and as a last resort the bank will force a property sale. The proceeds of the sale go towards repaying the debt to the bank. MORTGAGE INDEMNITY INSURANCE (MII) : is the insurance that protects the Bank (as lender) against financial loss which may result if it becomes necessary to sell a secured property. A Mortgage Indemnity Policy does not provide you, as a borrower, with any form of cover. However the protection of the bank's interest allows the bank to lend you more money and this avoids the need of a more costly second mortgage. As a 'rule of thumb' most banks would consider a loan in excess of 75-80% of the property value to require this cover. The premium is paid in one lump sum. OFFER : a proposal by one party to another to buy or sell a property (usually subject to specified conditions). POSSESSION DATE : the date from which you own the property, and are able to move in. PRINCIPA L: this is the amount of money outstanding on a loan or the balance. REGISTERED VALUATION : this is carried out by an Independent Professional known as a Registered Valuer. This person assesses the value by various means, including comparisons of recent sales of similar properties in the same area. In most cases a bank will require a Registered Valuation to be carried out to determine an accurate value of the proposed property purchase. The valuation may be more or less the same as the purchase price, however chattels (carpets, blinds, stove etc) must be deducted from the total value. Banks normally won't lend against chattels. ROLL OVER CLAUSE : a clause which enables a vendor to give the purchaser notice (usually 48 hours) to confirm a contract. If the purchaser is unable to confirm the vendor may cancel the contract after the 48 hours has elapsed and sell to a new purchaser. SETTLEMENT DATE : the date when the purchase price is payable (usually the same as Possession Date.) UNCONDITIONAL CONTRACT : a contract which has had all conditions fulfilled, and is binding on all parties. VENDOR : the person selling the property. |
192 Spey Street, Invercargill, New Zealand
Office Phone 0-3-214 4777
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johnking.re@xtra.co.nz