Before jumping into the property market and signing an Offer to Purchase (OTP), best you be sure that you’re ready for the financial commitment. An OTP is binding and the only escape clause (generally speaking) is that you are offered a loan by a bank. There’s no changing your mind once signed.
Based on the purchase price you should cater for approximately 8% – 10% of fees. The fees need to be paid in cash and cannot be added to the home loan. Thus, on a property of R1,5 million you would pay approximately R120,000 – R150,000 in fees. (This is just a rule of thumb calculation)
Know your rights
Firstly, it’s good to understand what your rights are regarding the OTP as many estate agents will bully you to simply sign. You are fully entitled to add a condition of sale that meets your needs. The buyer may not agree to it but unless you state your terms, no one will know.
You could for example state that the sale is on the condition that certain maintenance is completed, or that you receive a 100% loan from the bank at an interest rate that is acceptable to you. The wording is important as it needs to be acceptable to both you and the seller.
Estate Agents will do their best to deter you from any condition that is not suitable to them or their client. This however is where negotiation skills are needed as well as knowledge of your rights.
But, back to the costs involved…
Unless you’re buying a brand new unit from a developer, you’ll be paying Transfer Costs. This is simply a tax to the government and is payable to SARS based on a sliding scale according to the purchase price.
The current costs (1 March 2019 – 29 February 2020) are as follows:
Value of Property (Purchase Price) less than R900,000 = 0% Transfer Duty
R900,001 – R1,250,000 = 3% of the value above R900,000
R1,250,001 – R1,750,000 = R10,500 + 6% of the value above R1,250,000
R1,750,001 – R2,250,000 = R40,500 + 8% of the value above R1,750,000
R2,250,001 – R10 million = R80,500 + 11% of the value above R2,250,000
Over R10 million = R933,000 + 13% of the value exceeding R10 million
This transfer duty is to be paid cash and cannot be paid from your home loan. Thus, if you buy a property for R1,5 million, you will need R25,500 available to pay this fee.
Transferring attorneys are the next fee to pay. These attorneys will do the necessary legal work to ensure that the property is in your name. Also known as the Transfer Costs. I find these fees exorbitant as all practitioners simply print standard documents off their system and they don’t draw up anything special for you.
This fee is also based on a sliding scale and although you ave a little room to negotiate, it is pretty standard.
On a property of R1,5million the standard transfer cost is R23,480.
There are also other small fees applicable to the transfer. Deeds Office fees, postage & petties, and other admin fees. These could add up to around R2,000.
The Bond Attoneys are the ones who register your bond with the bank and they also work on a standard pricing based on the bond amount. You do have a slight chance negotiating a better fee but the attorneys are generally unreceptive to such requests. (I always ask anyway)
On a bond of R1,5 million the attorney fee is R23,480.
Again, a few small admin type fees apply that could add up to around R2,000.
Bond Initiation Cost
The bond initiation fee varies from bank to bank but is around R6,000. This can be added to the loan but have a look at how much is will end up costing you if you do add it to the loan.
It’s better to simply pay it if you have the money available.
This is not strictly speaking a fee, it’s more an upfront cost that you do recoup. The municipality will generally ask for 3 months of rates to be paid upfront which secures them their money while the transfer is happening and while there is any uncertainty. Or they ay ask for a fixed amount, depending on your local municipality.
The accounts will be reconcilliated and you will not need to pay anything that is not due. Depending on your area and size of the property you could see an upfront cost of a few thousand rands.
Buying a house a big decision and huge financial cost!
Be sure that you are ready as the upfront costs can often come as a shock and place a lot of undue pressure on your finances!
Besides the costs it’s also a good idea to have a deposit available. That just makes saving for a house even harder.
If you are planning on selling your existing house before purchasing a new one, have a look at whether you are selling at a loss. Just some extra things to think about.