Fees, fees and more fees!
When I bought the first property, I was so clueless about what to expect with fees. Being as clueless as I was, I asked many many questions to the bond originator and to the lawyers. I think they might’ve thought I am some kind of freak from mars – why don’t I just pay the money and let them do their job? Well, probably the same reason why you’re reading this – I really honestly wanted to know what I am getting myself into financially – in the short term as well as in the long term.
I am currently in the process to sell one of my (terrible) investment properties – and it seems I am in the same boat – except I am running into so many hidden costs which I was not aware of.
This is the big reason for writing this blog post: Maybe this can help other people budget better for their home, or investment property with or without a mortgage. I break this up into 3 stages: buying fees, running costs and selling fees.
When you buy a property, people need to make money.
Everyone wants you to part with it.
Most of your fees you will pay to two attorneys.
Hidden fees tip
Bond initiation fee: note that the bank will add an amount, normally about R 6 000 to R 7 000 onto your bond as a fee they charge to create the loan and account. This is not payable today, but you need to be aware that this is added to your loan amount.
If you are buying a place with a home loan or mortgage, this one is for you. The bond attorney is the legal person that the bank assigns to make sure their contract with you is created, signed and maintained. They will get the money and pay it over to the transfer attorney who will give it to the seller. These fees are known as bond costs, and can be broken down as follows:
- Bond registration fee – this is the attorney fee
- Bond deeds office fee – this is what they pay to register the bond at the deeds office
- Postage and petties – they charge this because they don’t use email. This could be variable.
The transfer attorney needs to transfer the property from the previous owner’s name onto yours. They sometimes handle closing the municipality accounts and other technicalities that you don’t think about. Transfer costs:
- Transfer fee – this is the attorney fee they charge you to do their job
- Transfer deeds office fee – this is what they pay to register the transfer at the deeds office
- Postage and petties – they charge this because they don’t use email. This could be variable. This could include things like driving to the deeds office and sending the paperwork backwards and forwards – this could include closing figures from the municipality and from the body corporate of the ‘body corporate’ of a block of flats (i.e. close off the levies due).
- Transfer Duty – the government charges people a special amount (often a percentage of your buying price) to buy expensive properties above R 1 000 000. SARS update annually and can be found here.
Remember it’s not only the attorney fees that you will need to pay. You most probably also need to pay fees in advance for the property on a pro-rata basis.
- If you are buying a sectional title unit, you might be required to pay up levies to 3 months in advance.
- For estates, you might be required to pay the estate levies three months in advance.
- Though not an immediate cost, it is important to register the property’s rates and taxes in your own name. The costs vary from municipality to municipality.
Selling your property
When selling your property, there will be costs.
You would need to make sure your property is in a condition that deems it legally sellable.
Make sure that you settle all arrears fees such as electricity, rates and taxes. If you live in an estate or sectional title block, you need to get your levies up to date, as you would be required to get closing numbers. Make sure that your homeowners’ association fees are also up to date.
Generally, the fees for selling a property are less than for buying. This is because the purchaser will cover a lot of the transfer costs.
Fees not covered which you would need to cater for include the following:
- Advertising costs and agent fees – when selling through an agent or a website, the agent will charge a percentage of the cost of the property for their services.
- Compliance certificates:
- Electrical certificate of compliance (COC)
- Gas certificate of compliance (COC) if applicable
- Beetle certificate of compliance (COC) if applicable
- Fixing up the property – you might be required by law or by conditions in your contract (the offer to purchase that you signed) to fix up or repair the property
- Municipal closing figures – you will need to pay the municipality to close your rates and taxes account. This again differs from area to area. I think a good measurement could be about 3 months of rates and taxes. If you have any money left over, this could be put into other uses.
- Sectional title closing figures: If relevant, the body corporate needs to supply the attorney with closing figures as well. They normally charge a fee for this – often less than R 1 000
Bond Cancellation Attorney
If you still have a bond on your property, you will need to pay the bond cancellation attorney as well. To my shock, I recently discovered that the bank appoints them and forces you to pay the fees – well they deduct it from the purchase price. The math works something like this: Purchase price – home loan amount left – fees = what you get back
Bond cancellation fees:
- Bank penalties – if you did not give 3 months’ notice, you require to pay 3 months of interest as a penalty.
- Bond cancellation attorney fees – this is normally a couple of thousand Rands – I paid 1% of my property value for this recently but could be higher depending on the attorney chosen for you
Don’t be deceived, there’s a serious amount of cash on hand that you need to buy a property. The main fees you need to consider are the bond costs, transfer costs and small odd fees that you need to pay, as outlined in the hidden fees.
I have tried to break it down as much as I can, but I realise this is a complex thing – and it’s convenient for the people making money from it to be complicated.