If you are planning to purchase a house, it advisable to do your home work and for that you need to pay attention to smaller details when it comes to real estate. Builders and brokers try to fool those who doesn’t possess basic knowledge of real estate terminologies. The moment you sound like a novice to well dressed marketing team, they ensures you fall in their well laid trap.
Today I will try to explain some of most common real estate terminologies and at the end of the article you should have enough knowledge to counter those well dressed marketing guys who try to fool you.
Common real estate terminologies:
- Carpet Area: When you buy a flat, the area when you can lay the carpet is referred as Carpet Area. Till date apartments are sold on the basis on Super Area but what should matter to the home buyer is the carpet area. This is the area that you would actually use. Higher the carper area, better the space you get. One should ask for exact carpet area.
- Built-up Area: Build up area is the area which includes Carpet area and the area of walls, doors inside the house. This area is generally 15-20% of the carpet area. However, houses are still not sold on built up area basis.
- Super Area: Super Area or Super Built up Area is the sum of built up area and the area of all common facilities of the complex divided among all the buyers in proportion. This is only an artificial impression of the house and one should never ever reply on the super area. Unless you are sure of the carpet area and built up area, avoid making the purchase.
- Common Areas: Common areas are the undivided parts of the commonly owned premises. The areas such as the parking lot, lawns, swimming pool, community centers, corridors, lobbies, elevators, etc are not owned by a single individual owner. The responsibility for upkeep and maintenance of these areas is collective.
- Common Area Maintenance: The contribution or fee paid collectively by the owners of individual units for the maintenance and upkeep of the common areas of a real estate complex. These areas are generally managed and maintained by Residents’ Welfare Association or an outsourced Facilities Management Company.
- Floor Plan: Floor plan is the architectural drawing of your apartment. This specifies the dimensions of the rooms, bathrooms, kitchen and balconies etc. Floor plan can be used to derive the carpet area and built-up area. This is the actual area that you own. One must ensure this is part of the apartment buyer agreement.
- Layout Plan: Layout plan is the architectural design of the entire project. It generally contains number of towers/buildings, common facilities, club building etc.
- FSI (Floor Space Index) / FAR: It is the ratio specified by local authority (generally municipal corporation or urban development authority) which governs how much area one can build over a specific plot of land. i. e. if FSI for an area is 2.75 and you have a 10000 sq ft plot, you can build (2.75 X 10000) 20000 sq ft building over it. Generally, common areas like staircase, lift, passage leading to the flat door, service ducts outside toilets and kitchens, etc. are not considered in this 2000 sq ft FSI area, which means, you can construct these areas over and above the permitted FSI area. For buyers, higher the FSI, dense the society and higher the number apartments/people in the complex.
- Inventory: Inventory or stock refers to the real estate area in square feet or number of property units that a company or individual holds for the ultimate purpose of selling or leasing.
- Basic Sale Price: BSP is the per square feet rate at which apartments are sold. There are other charges also that are separate from BSP.
- Basic Sale Price (BSP) of Apartment: BSP of apartment can be arrived at by multiplying basic per square feet rate with the area of the property in square feet. To arrive at the final price of a property, the buyer should add all other charges.
- Other Charges: While BSP is just the basic price of the property, there are other charges that derives the total cost of the apartment to the customer. Other charges usually consist of parking charges, preferential location charges, registration charges, power backup, IFMS, EDC, IDC etc.
- Earnest Money / Booking Amount: A deposit made to a seller showing the buyer’s good faith in a transaction. Earnest money allows the buyer additional time while seeking financing. However, if buyer try to cancel the apartment, builders usually forfeit the earnest money.
- Credit Note: This term is generally associated with the discount/commission offered by brokers while making apartment booking. In competitive market, brokers pass on certain part of the commission received from developer to the buyer. However, this is not adjusted on the booking form but comes a promise to payback.
- Booking Form: This is the first form that you fill while booking the apartment. This is generally filled by brokers or builder’s marketing team is error pron.
- Allotment Letter: Once initial payment is done, builder issues a confirmation in the form of allotment letter. This contain important information like Flat/Tower number, BSP, Other charges etc.
- Builder Buyer Agreement (BBA) / Flat Buyer Agreement: Once the allotment letter is issued to buyer, Builder sign an agreement with buyer. This contains lot of conditions attached to your purchase. Builder only promises to deliver what is mentioned in the BBA and not the brochures.
- Tripartite Agreement: This is an agreement between the builder, builder and the bank providing the loan.
- Power of Attorney: A power of attorney (POA) or letter of attorney is a written authorization to represent or act on another’s behalf in private affairs, business, or some other legal matter, sometimes against the wishes of the other. The person authorizing the other to act is the principal, grantor, or donor (of the power). This comes handy when you have to travel abroad and you want someone else to take care of your apartment.
- Gift Deed: Generally you “sell” the property in exchange of money. But when you have to transfer the property rights to some one without taking the money like what happens in families, then you should to pass it on as GIFT and a Gift Deed should be prepared to document the process. Note that Stamp duty is to be paid even if the property is transferred through Gift Deed.
- Sale Deed: A sale deed is one of the most important legal documents in a purchase or sale of a property. Once its signed by the seller and buyer only then the sale is assumed to happen legally. The registration of property and stamp duty payable is based on sale deed only. A sale deed will also contain property details , measurements and other important details.
- Possession Letter: This is the final demand letter from the builder. This contains full and final demand including additional charges or refunds (delay penalty) if any.
- Possession Certificate: Once all the demands against the possession letters are cleared and property is registered, builder shall issue possession certificate. He shall also offer you apartments keys.
- Conveyance Deed: Conveyance Deed is a legal document which a builder executes in order to transfer the land title to Housing societies formed. This is generally done once all the flats are sold in a project. This step is extremely important because if this is not done, the title of land still remains with Builder and in case in future something happens, there is unnecessary legal battles. So make sure that once the society is formed, the conveyance deed is executed.
- Occupancy Certificate: OC or Completion Certificates are issued by municipal corporation of the area after inspecting the construction and ensuring the layout plan is adhered to. Building is considered to be ready-for-occupation after builder has not only completed the construction but has also made it habitable by bringing in all services like electricity, water supply, drainage connection and fire fighting facilities. In certain part of the country authorities issue part completion certificate when project is being delivered in phases.
- Completion Certificate: Once the project is completed, the local authority visits the site and inspects the construction and various things and awards completion certificate to Builder. Completion Certificate is kind of certificate from local authority, that now the work is complete. This is the moment a builder can officially declare about the project completion. There still can be few last minute things which might need to be addressed.
- Registrar: This is a government office where you property is registered and a record is maintained. In certain part of country, properties are on lease hold and local authority like Noida Authority sublease the property.
- Stamp Duty/Registration/Registry: – Stamp Duty is the tax collected by Government . The stamp duty payable differs from one state to another. Stamp duty is usually calculated on the circle rate which can be higher or lower than the actual cost of the apartment. Important point is that women in many states have to pay lesser stamp duty compared to men.
- Circle Rate: The minimum value of a property at which the registration of a property is done.
- Title Deed: A title deed is a legal document used to prove ownership of a piece of property. In some states it is also referred as registry documents.
- Capital Gains: An increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold. A capital gain may be short term (one year or less) or long term (more than one year) and must be claimed on income taxes.
Long-term capital gains are usually taxed at a lower rate than regular income. This is done to encourage entrepreneurship and investment in the economy.
- Long term Capital Gains (LTCG): A capital asset is classified as a long-term capital asset (LTCA) if it is held for more than 36 months from the date of acquisition. LTCG is taxed at a beneficial rate of 20%, plus a cess of 3%, subject to fulfillment of certain conditions. While calculating LTCG, the cost of acquisition and improvement, if any, shall be adjusted by applying the Cost Inflation Index (CII) notified by the tax authorities in the year of purchase and sale, respectively.
- Short term Capital Gains (STCG): STCG is earned on sale of a capital asset which has been held for not more than 36 months immediately preceding the date of its transfer.
- Capital Loss: The loss incurred when a capital asset (investment or real estate) decreases in value. This loss is not realized until the asset is sold for a price that is lower than the original purchase price.
- Capitalization Rate (Cap Rate): A rate of return on a real estate investment property based on the expected income that the property will generate. Capitalization rate is used to estimate the investor’s potential return on his or her investment. This is done by dividing the income the property will generate (after fixed costs and variable costs) by the total value of the property. In technical terms, it is the discount rate of a perpetuity. Also known as “cap rate”.
Capitalization Rate = Yearly Income/Total Value
- Broker Charges: When you purchase a house with the help of a property agent also known as brokers, they would charge a fee for facilitating the deal. This may vary from 0.5% to 1% of the total cost of property.
This is not the exhaustive list of all the real estate terminologies but only those that matters the most. So next time when you walk into the builder’s office, sound like a informed buyer.