Hidden costs of buying a home – the experts lay it out on My Property
Buying property need not be overly complicated or stressful, but it’s not as simple as saving for a deposit and choosing your dream house.
For uninformed investors the dream can quickly become a nightmare when faced with the financial burden of myriad additional costs which arise throughout the process.
Some are upfront, out-of-pocket costs that are non-refundable even if the deal does not go through, whilst other costs will only hit your pocket once the sale is concluded and it is essential that these are all factored into your budget.
Kay Geldenhuys from ooba, South Africa’s largest mortgage originator, says: “As a rule of thumb, you should allow for between 8% and 10% of the the purchase price of the property for the additional costs over and above the deposit.
“However, it is essential to do your homework thoroughly to ensure you that you are aware of all the relevant costs and procedures before you even start looking for a home as this determines in which price range you can afford to buy.”
Geldenhuys adds: “Similarly, sellers who embark on this transaction for the first time can also be in for a rude awakening if they aren’t aware of what is required to complete the sale and, if they leave everything until the last minute, they could be faced with having to fork out a king’s ransom in a short space of time which, if unpaid, could scupper the deal.”
So, you’re finally ready to take the leap and make what is probably the biggest investment of your life. Here’s what you need to know avoid the budget being stretched to breaking point.
According to Specialist Conveyancing Attorney Elana Hopkins of Dykes Van Heerden Incorporated, the purchaser is responsible for the following:
1. Bond registration – conveyancer’s fee: This is the conveyancing attorney’s fee for the service they provide to get your bond registered on behalf of the bank. The fee is governed by the Law Society tariff guidelines and is calculated according to the sale price, with the percentage charged declining as the property price increases.
2. Bond registration – Deeds Office registry fee: The fee charged by the Deeds Office for the legal registration of your mortgage bond.
3. Property transfer registration – conveyancer’s fee: The fee for the service the transferring attorneys provide to get your new home transferred from its old owner and registered into your name. This fee is also governed by the Law Society tariff guidelines and is calculated according to the sale price, with the percentage charged declining as the property price increases.
4. Property transfer registration – Deeds Office registry fee: The fee charged by the Deeds Office for the legal registration of the transfer of the property into the name of the purchaser.
5. Transfer Duty: A government tax levied for the transfer the property from the seller’s name into the buyer’s name. It generally constitutes the major portion of the additional costs involved and is calculated according to the sale price, with properties of under R750 000 being exempt from transfer duty.
R750 001 – R1 250 000 = 3% on the value above R750 000
R1 250 001 – R1 750 000 = R15 000 + 6% of the value above R1250 000
R1 750 001 – R2 250 000 = R45 000 + 8% of the value above R1750 000
R2 250 001 – R10 000 000 – = R85 000 + 11% of the value above R2 250 000
R10 000 001 plus = R937 500 +13% of the value exceeding R10 000 000
If the seller is registered as a VAT vendor, no Transfer Duty is payable, however the seller should have included VAT in the purchase price, failing which it shall be deemed to be included unless expressly excluded in the deed of sale. This is usually the case when buying property in a new development – the developer is generally VAT registered.
6. Body corporate or home owner’s association fee (if applicable): When purchasing a sectional title unit or a property in an estate which is managed by a home owners’ association, the body corporate or home owners’ association might require payment from the purchaser of a portion of the home owners’ association or -body corporate levy.
7. Home loan initiation fee: This fee is charged by the bank for the processing of the home loan application. This is a once-off administrative fee which is prescribed by the National Credit Act and it’s currently R5 985.
“All these extra charges add up to a considerable sum, “ says Hopkins, “and, if unprepared or shopping over budget, buyers could easily find themselves in a financial bind – or with no new home to call their very own.”
She says that whilst sellers have fewer additional costs, the consequences of not planning ahead and doing thorough homework can be disastrous and the consequences far-reaching.
Estate Agent’s Commission: This is earned upon conclusion of the transaction and usually payable on registration of transfer from the proceeds of sale by the seller. The average estate agent’s commission usually ranges up to about 7.5% however this is not regulated in South Africa and there is no set rate.
Bond cancellation – conveyancer’s fee: This is the conveyancer’s fees for the cancellation of an existing bond over the property. In the event that the loan term has not expired, the seller must provide the bank with 90 days written notice prior to cancellation date of the intention to cancel the bond so as not to incur penalties. Prompt notification also avoids possible delays in transfer.
Compliance certificates: Property owners are required by law to ensure that the property is legally fit for sale before the transfer can take place. Occupancy, electrical, beetle, gas, plumbing and electric fencing compliance certificates are required. These each cost between R300 and R500 and take only a few days to acquire if all is in order, but if problems are discovered then you also have bear the costs of the necessary work to be done before the certificate can be issued, which can delay transfer if left to the last minute.
Body corporate and home owner’s levy (if applicable): The body corporate or home owner’s association might require payment from the seller of a portion of the body corporate levy figures until date of transfer.
Municipal provision for rates and taxes: This covers all rates and taxes that are payable in advance by the seller. It varies from one local authority to another, in accordance with the valuation of the property but it is wise to work on an amount of around R 5 000 per property.
Jill Lloyd, Area Specialist for Lew Geffen Sotheby’s International Realty in Lynfrae and upper Claremont cautions that although providing the buyer with building plans is not a legal requirement, it is crucial that the seller confirms that the council approved plans mirror the house layout at the time of sale.
“Structural alterations to a property require council approval and if unauthorised changes were made, the seller could find himself in legal and financial hot water and even lose the sale”
Lloyd says that lengthy delays and a costly process can easily result as she recently witnessed during the sale of a house in Claremont.
“The transaction was seamless until just before transfer when the bank inspected the property and informed the seller that the small pergola in the back garden was an illegal structure which required approved plans as it had a solid cover.
“The seller was faced with two options: the lengthy process of having plans drawn up and approved or removing the roof sheeting to render the pergola compliant. He chose the latter so as not to delay the sale but we had to draft an addendum stating that he would, thereafter, have plans drawn up and approved as well as replace the roofing at his own expense.”
Lloyd says it is essential to bear in mind that getting plans approved for an illegal structure can take as long as the whole transfer process and that the banks will no longer allow a bond to be registered if any portion of the property does not comply to the council regulations and does not have the council stamp of approval on it.
Lew Geffen, Chairman of Lew Geffen Sotheby’s international Realty, advises: “I cannot emphasise enough how important it is that both buyers and sellers take the time to ensure that they have covered all their bases and have a clear idea of the cost of their purchase or sale.
“Being prepared will also allow you to save money from the get-go rather and will minimise the possibility of ending up with a mountain of unforeseen debt.
“One of the best ways to do so is to to utilise the services of a bond originator to source the best financing option; a service for which they don’t charge. Their access to multiple lenders, enables them to negotiate on your behalf and to obtain the best deal, thereby saving the homebuyer thousands of Rands in interest over the term of the bond.”
He concludes: “In addition to arming yourself with knowledge, enlisting the services of a knowledgeable and experienced estate agent is also essential to successfully and seamlessly navigate potentially crippling administrative and financial minefields.”