When it comes to purchasing or selling property, many first-time buyers and sellers may be unaware that the cost implications of a property transfer extend beyond the purchase price. It is therefore essential that the various additional costs are considered and accounted for before signing the sale agreement.
Cost considerations for the Purchaser:
As the purchaser there are certain unavoidable costs that should be budgeted for when purchasing a property. These costs generally depend on the value of the property and comprises of the purchase price and deposit, the bond registration fees (where the purchase is financed by a financial institution) and the transfer fees, which includes conveyancer’s fees, deeds office fees and transfer duty payable to SARS.
While the conveyancer is appointed by the seller, the amount charged by the conveyancer to process the transfer of the property from the seller to the purchaser (known as the conveyancing fee) is settled by the purchaser. This fee is calculated in accordance with a tariff issued by the Legal Practice Council of South Africa.
The deeds office fee is an administrative fee charged for the receiving and processing of documentation at the deeds office, including registration of the transfer of ownership of the property. This charge includes general disbursements (postage, petties etc.) and it is subject to VAT at 15%.
Transfer duty is a tax levied based on the value of the property purchased when the property is transferred into the purchaser’s name. This is one of the largest cost considerations when purchasing a property. If transfer duty is not payable in respect of the transaction, VAT will be payable instead. This occurs where the seller is a VAT vendor and the property is sold in the ordinary course of its business.
Where the purchase is financed by a bank, a mortgage bond is required to be registered over the property. The bond registration process is attended to by an attorney appointed by the bank who will charge a fee calculated on the abovementioned tariff to facilitate the process of registering the bond in the purchaser’s name.
A deposit usually amounts to 10% of the price and is paid in advance to the conveyancer/s transferring the property. The money is held in a trust account until the bond is registered. Upon registration the funds are paid to the bank and any interest that has accrued in the trust account is transferred back to the purchaser. An advantage to paying a deposit on the property is that it will result in a reduction of the monthly bond instalments.
Cost considerations for the Seller:
The seller of a property should expect to pay for the property insurance, municipal rates, taxes and levies, including current and future arrear municipal charges, such as electricity, water and sanitation charges, bond cancellation figures as well as an estate agents fee.
Property insurance is required to protect and provide liability coverage for property owners, thus it is usually required where an existing mortgage bond is registered on the property to protect the banks interests. This means that a monthly insurance premium should also be accounted for. Additionally, where there is an existing mortgage bond on the property, the seller may also have to pay the cancellation costs to cancel any existing mortgage bond on the property.
When paying for municipal rates and taxes, a seller should budget to pay for the arrear charges as well as what is owed for three to four months in advance (rates clearance figures). After the sale has been finalized, the seller is able to apply for a refund for any remaining credit due after the amounts owing have been deducted.
If an estate agent is used there will be an estate agent’s fee or commission owing at an agreed rate based on the purchase price, plus VAT. This fee is payable upon registration of the transfer and can be negotiated.
Finally, there may be costs for cleaning, repainting, and other miscellaneous repairs if required.
Legal responsibilities of the Seller:
Before the transfer of ownership can take place, the seller has additional obligations. For example, they must obtain various compliance and clearance certificates including an electrical compliance certificate, gas installation, plumbing, electric fence, water and beetle infestation clearance certificate. The conveyancing attorney will assist with obtaining the plumbing certificate, however, it is the Seller’s responsibility to obtain the other required certificates which must be submitted by the conveyancing attorney.
The seller should also consider the effect of patent and latent defects on the sale. A patent defect refers to a fault on the property that is easily visible and should be disclosed in the Offer to Purchase, for example a crack or water damage on the walls. A latent defect is a fault on the property that can only be detected by professional inspection, for example a faulty geyser or rusted pipes.
In the Offer to Purchase/Sale Agreement, the purchaser may include a provision obligating the seller to fix any patent defects in the property. In respect of latent defects, a “voetstoots” clause is included which refers to the property being sold “as it is”, freeing the seller of any obligation to repair latent defects evident after the purchase of the property.
It is evident from the above that there are significant cost implications when buying and selling property and it is important to ensure that sufficient research is completed to obtain a clear understanding and awareness of all costs involved.
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