How much does it really cost to buy a home?

Editors Note: Figures up to date as of 20/04/2015

We all know that you need money to buy a property and you need an income to repay a loan but are you aware of the fees and taxes involved?

Many people, we find, are oblivious and sign purchase contracts without fully understanding what they have committed themselves to!   When they approach us for assistance with their home loan application, we make them aware of the significant costs involved and that these costs may NOT be included in the home loan as they were a decade ago.  We don’t want to rain on your parade but buying a home, even without a loan, is a serious commitment and you need to be prepared for the costs involved beyond the purchase price.

Save up before your buy!
When you begin your house hunt the reality is that you need to have around 5% of the purchase price in cash to pay the associated fees and taxes.   And if you need a home loan to secure the purchase we advise you to have at least 15% of the purchase price available in cash. Why so much? Because South African banks are not at all keen on granting 100% loans and may simply not consider your application at all OR add a “risk premium” to your interest rate! Either way you lose: a home loan “decline” will leave a negative footprint on your credit “score”,   and the adding of a “risk premium” means that you will pay an interest rate way above prime!

So, you’re going to need that 10% to secure home finance at a reasonable rate. It may take you a while to save up that kind of money but in the long term a  deposit will save you tens of thousands of Rand in interest payments or it could even mean the difference between getting your dream home or staying where you are.

And what about that 5%? What is that actually for? As an example we will now provide a break-down of the costs on a purchase price and loan amount of R1 000 000.

Transfer Costs on Purchase Price of R1 000 000:

  • Transfer Duty (tax payable to SARS)                                         R7 500
  • Transfer Attorney Fee:                                                                   R14 550
  • VAT on above:                                                                                 R2 037
  • Deeds Office Levy:                                                                          R850
  • Deeds search fee:                                                                          ± R120
  • Posts & Petties / FICA:                                                                   ± R1 500
  • Attorney taking instruction fee:                                                     ± R200
  • Municipal Rates Clearance Certificate:                                      R60

TOTAL transfer costs:                                                                                ± R27 117

Registration Costs on Bond of R1 000 000:

  • Registration Attorney Fee:                                                             R13 160
  • VAT on above:                                                                                 R1 842
  • Deeds Office Levy:                                                                         R850
  • Deeds search fee:                                                                          ± R120
  • Posts & Petties / FICA:                                                                   ± R1 500
  • Attorney Electronic Facilitation Fee:                                            ± R200
  • Bank Initiation Fee:                                                                         R5 700

TOTAL bond costs:                                                                                      ± R23 372

TOTAL COSTS OF APPROXIMATELY                                                   R50 489

Can these costs be reduced?

These costs cannot be avoided and only with great difficulty can they be reduced. The fact is that there are a lot of people who make a lot of money when a property is sold. And it seems that they have teamed up to ensure that they make the most profit out of the purchaser and the seller. The biggest attorney firms in the country have incredibly close relationships with the biggest banks AND Real Estate Agencies and these relationships have resulted in less competition on all fronts.

For example: The BANK allocates the attorney firm who will register your bond.   As the home loan applicant you have no say, which means you cannot take your bond registration business elsewhere and as such you cannot negotiate for a fee reduction.

There is one way you can reduce the transfer fee but doing so is tricky and must be arranged at the very beginning of your purchase process. Luckily you have kept reading our blog and I will now tell you how you can save a few thousand Rand.

–       Even before you’ve found a property, but certainly before you sign an Offer to Purchase, approach an attorney firm qualified to handle transfers. Negotiate with them, and get confirmation, in writing, that they will reduce their fee if they are appointed as the transferring attorney in your purchase.

–        Now for the tricky part:  The seller of a property has the right to appoint the Transfer attorney but nothing prevents you (the purchaser) from making it a written condition on your Offer to Purchase document that the seller names your attorney for the transfer.   The seller can refuse but there is really no reason why he should (you’re paying all the costs, remember!). And if the seller does not accept your condition, he must do so in writing to you.  An estate agent may not just tell you that the seller is not prepared to use your attorney!

Why?

Our experience is that estate agents sometimes put pressure on the seller to use a certain attorney or may even nominate a transfer attorney without consultation with the seller!      The Transfer Attorney represents the seller in the sale transaction. Often an Estate Agent will put forward the excuse that the reason for not using an attorney nominated by the purchaser is that if a dispute should arise between seller and purchaser there will be a “conflict of interest”. This is nonsense of course, as a Transfer attorney is ethically and professionally bound to always act for the seller irrespective of who appointed him!

It shouldn’t be that tough to save a few thousand Rand but it is. People often feel intimidated by attorneys and estate agents alike but the reality is that you have the power: they are providing you with a service and there are thousands of other firms willing to compete with them.

Forewarned is forearmed!

Even if your property purchase plans are vague or a few years off please start saving now and speak to a reputable attorney today. We don’t want the fun and excitement of finding your dream home to be tinged with regret.

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