While some first-time buyers are under the impression that being granted a 100% home loan and not having to put down a deposit means that they are exempt from upfront costs, they are mistaken, says Rhys Dyer, chief executive of Ooba Group.
The home buying process doesn’t end once the buyer and seller sign the contract, he said. “It’s important that potential buyers familiarise themselves with the legal and administrative costs involved in officially transferring ownership of property.
“These costs, taking into account conveyancing fees and transfer duty, can total tens of thousands of rands, so buyers need to be prepared and have the funds available. If they don’t, poor planning could derail their dreams of homeownership.”
As an example, the registration and transfer costs on a R1.4 million home, the country’s average purchase price right now, are as follows:
- Bond registration (attorney) fees (incl VAT): R29,394
- Bank initiation fees (incl VAT): R6,037
- Post, petties, FICA, and other administrative fees (including VAT): R2,400
- Property transfer (attorney) fees (incl VAT): R29,394
- Transfer duty: R13,174
- Total: R80,400
Below, Dyer further broke down some of the hidden costs buyers should expect right now.
Once a buyer has their Offer to Purchase (OTP) accepted by the seller, a conveyancing attorney is needed to legally transfer ownership to the buyer. There are three kinds of conveyancing attorneys involved in this process: bond attorneys, transfer attorneys and cancellation attorneys.
The buyer is responsible for paying the fees of the bond attorney and the transfer attorney. Dyer breaks down the key differences between the two as follows:
• Appointed by: The buyer’s bank after a home loan is granted.
• Services: Registering the new bond over the property in favour of the bank financing the property and preparing the required legal documents for the buyer to sign.
• Fees: The bond attorney is a once-off fee that must be paid upfront. The price is calculated on a sliding scale in relation to the cost of the property or the bond amount.
• Appointed by: The seller, but the buyer must still pay their fees.
• Services: Ensuring that property ownership is legally transferred from the seller to the buyer and lodging a sale record with the Deeds Office.
• Fees: Like the bond attorney, the fee is calculated on a sliding scale in relation to the purchase price or bond amount. However, they may charge for extra services as needed.
Conveyancing attorneys also charge a levy to cover small costs such as postage, petties, and FICA (ID and proof of residence) documents. This is usually a fixed rate and varies per law firm, Dyer said.
“Buyers should note that conveyancing fees are the only portion of the transfer costs that are actually negotiable. These fees are equal to a percentage of the property value, but there’s no harm in talking to the attorney to see if a discount is possible.”
Transfer duty and admin costs
Transfer duty, unlike conveyancing fees, is non-negotiable. This amount is a tax paid by the buyer to the South African Revenue Service (SARS) within six months of the property transfer.
There is no liability for transfer duty if a property purchase is cancelled before the transfer is registered at the Deeds Office or if the property is valued at less than R1 million.
Current transfer duties in 2021 are calculated as follows:
“When calculating transfer costs, buyers should speak to the conveyancing attorney to find out if the seller is registered for VAT. If so, no transfer duty is payable, and the seller must have included VAT in the purchase price. This is often the case when buying a property in a new development,” said Dyer.
Another cost that first-time buyers need to be aware of is the bank initiation fee, payable to the bank for processing the home loan. This amount varies by the bank but cannot exceed R6,037, he said.
“Also be sure to factor in other often overlooked costs such as moving costs, occupational interest, municipal rates and taxes, repairs and maintenance as well as home insurance.”