This is how buyers and sellers split the bill
Both sellers and buyers have certain responsibilities and obligations that they need to address during a property transaction, before the property can change ownership, says Jose De Abreu, broker/owner of RE/MAX Property Associates and founder and managing partner of De Abreu & Cohen Inc, conveyancing attorneys. It is for this reason he says that both parties need to prepare financially before either selling or buying a home.
De Abreu discusses some of the costs involved in a property transaction and who is responsible for what:
It is fairly common for a buyer to require a percentage of the purchase price of the home as a deposit, however this is not the only cost that buyers will need to prepare for. A buyer will also need to factor in financial aspects such as the transfer fees and the bond costs, if registering a bond with a finance provider.
When a property is bought and transferred into the buyer’s name, the South African government levies a tax on that property transaction based on the value of the property. If purchasing a vacant stand, the transfer duty is based on the value of the land. However, transfer duty on an existing home will be based on the value of the land and building. As of 1 March 2015, properties valued below R750,000 are exempt of paying transfer duty. Transfer duty on homes bought for more than R750,000 is charged on a sliding scale percentage relative to the property’s value. For example, a property valued at R3m will cost a buyer R85,000 plus 11% of the amount above R2,25m.
De Abreu notes that the transfer duty is payable to the conveyancing attorneys approximately one month before transfer, so buyers will need to have the money saved up before they start looking at homes. “In a case where the property has been purchased from a developer who is registered for VAT, then VAT is charged by the seller on the purchase price and paid over to SARS,” he says. “In such a case the purchase price of the property could either be expressed as VAT inclusive or VAT exclusive, so the buyer must take care to note carefully whether the purchase price as recorded in the written agreement of sale excludes or includes VAT.”
De Abreu says that if a buyer has bought the property with the intention to renovate or subdivide the it, they might be required to pay for a conveyancer’s certificate regarding certain title restrictions that may be relevant to that particular property. This certificate will generally cost in the region of R2,500, plus VAT. In addition to this the buyer may also be required to pay for the approved plans of the property. Even if the seller may have drawn up plans for the renovation and the offer to purchase may stipulate their inclusion, the seller is not legally bound to provide the buyers with the approved plans, unless expressly stated in the agreement.
“Another cost that the buyer may need to consider is occupational rent,” he says. “When transfer is due and the date on which it is agreed the buyer can move into the property, the occupational rent amount is predetermined beforehand and stipulated in the offer to purchase. The stipulated amount should be based on fair market value.”
The seller will be responsible for paying the agent’s commission, along with obtaining all clearance certificates for the property. These would include an Electrical Certificate of Compliance (ECOC), which must not be older than two years and must cover all electrical installations during this time. It is important to note that, where applicable, electric fences are covered under a separate certificate. Other clearance certificates include water and plumbing, gas and beetle certificates if applicable. If no repairs are required, the cost of obtaining all the certificates will be in the region of approximately R2,500, depending on the service providers used.
According to De Abreu, while it is very much dependent on the agreement of sale between the two parties, repairs that need to be completed around the home will also be for the seller’s account.
“The seller will be responsible for paying the bond cancellation fee, which is payable directly to the bond cancellation attorney and is applicable even if the bond is at a nil balance,” he says. “The seller will be required to provide the holder of their bond with three months written notice in order to cancel the bond. If this is not done, the seller is generally required by the bondholder to pay a bond penalty interest, which will equate to approximately one month’s bond repayment for every month of notice not given.”
He notes that as a general rule, sellers will have to pay a four-month advance on their rates and services, as well as any arrears owing on any levies or their homeowner’s association fees and may also be asked to pay these in advance, up to the anticipated date of transfer.
“If either the buyer or seller is not sure of what they are required to pay, they should consult with a real estate professional or property attorney who can provide them with further guidance,” De Abreu says. “Financial preparation will ensure that the property sales process runs smoothly and that there are no monetary surprises on either side of the sale.”