Not knowing what you are doing when selling your home and buying another could cost you dearly. It is one thing to read about potential costs, even budget for them, but until you are in the process and committed, you really can’t budget 100% accurately. In fact, some conveyancers recommend budgeting at least an additional 10% of the purchase price just to have a safety net.
I recently sold my home and thought I knew what all the financial implications would be. I made some errors in my calculations, thinking I had accounted for everything, but there were surprises. My experience may help those who, in a similar situation, will have a better understanding of what to expect.
Firstly, the new property I bought was subject to the sale of my existing property. This meant that from the proceeds of the sale, my existing bond would be settled, and I would therefore be able to buy the new property outright with the leftover proceeds. I also believed there would be enough funds to cover all the conveyancing and other fees. I was wrong - but fortunately, not drastically so.
Agents commission and VAT
My first mistake was not remembering to include VAT on the agent’s commission. I accept responsibility for this because, throughout the documentation, it was declared that VAT was NOT included. This meant an additional R8000-odd.
Suggestion: It might be easier for sellers if agents quote their commission inclusive of VAT. Bear in mind that while the sellers’ market frequently complains that agents’ commissions are high, agents do have costs inclusive of paying their agency fees, marketing/advertising and administration, and of course, tax.
Settlement of existing bond
During the buyer’s application, as well as the registration processes, the existing bondholder will still be liable for the monthly bond instalments. Only once the bond has been registered in the buyer’s name will the proceeds of the sale be paid to the registration attorney, who will then distribute the funds to the bondholder’s bank to settle the bond, and to whomever else funds are due.
When a bondholder decides to sell their home, the bank will issue cancellation figures, which will include interest, admin, outstanding balance, etc., as at the date of the request to cancel. These figures will then be used to work on when the settlement comes into play.
This can have quite an impact on finances - in my case, an additional, roughly, R30 000, which I had not accounted for in my initial estimates. However, after registration and given that I continue to pay the home loan as normal in the meantime, there will be some relief when the conveyancers complete the final settlement. Of course, such a refund is dependent on your individual circumstances and whether or not you are using those funds toward your new property.
Also, note that all financial institutions (banks) have their own processes and may differ from my experience.
Suggestion: You MUST account for this in your affordability calculations. Not doing so can severely affect the affordability choice of the future home you select or have committed to buying. If you find yourself in a position where you may not be able to continue to afford the home loan repayments during the registration period, consult with your conveyancer and/or home loan provider.
- Seller’s conveyancing account summary
- The final statement of account will show the following:
- The purchase price.
- The bond settlement figures (inclusive of up to three months as mentioned earlier).
- The bank’s bond cancellation costs
- The agent’s commission, inclusive of VAT
- The municipal rates clearance figures
If you agree, use consultants who will, on the seller’s behalf, obtain the municipal clearance and acquire the certificate AND close the seller’s rates account and obtain any refunds.
These figures will clearly indicate your financial status on the sale of your existing property. Note that some of these items (not all) are subject to VAT. Also, note that you cannot claim the VAT back on property ownership deals regardless of being a VAT registered vendor trading as a sole proprietor.
Suggestion: Prior to selling your home, request from the home loan provider, an indication of what the costs are to cancel your home loan, inclusive of the three months instalments. You also need to bear in mind that you will likely get a refund after the transfer is complete; you should consider that refund as a bonus, not depending on it for any other costs in the chain.
Buyer’s conveyancing account summary:
The final statement will show the following:
- Transfer duties on properties of over R1-million. No transfer duties under R1-million properties.
- Any bond registration fees payable to a bank should you have applied for a home loan.
- SARS e-filing instruction fee
- Document generation fee
- Deeds office search
- Conveyancing fee
Notarial cession - applicable if buying in an environment where exclusive use areas are in play, such as sectional title schemes.
- Deeds office fee - transfer
- Deeds office fee - notarial cession - the inclusion of the buyer’s common property portion (sectional title)
- Rates clearance application to the municipality
- Levy clearance certification (if buying in a complex)
- Provision of X months levies (upfront payment) in a sectional title complex. Usually 2-3 months.
- Postages and petties.
- Occupational rent fees, should you move into the new property before transfer.
Anticipate all these costs, and where you can’t account for some, speak to a property agent who works in the area in which you intend to buy. An agent will have a good idea of what sort of levies or rates are incumbent on residents. If you apply the additional 10% safety net in your calculations, you will likely be able to budget better, and if the additional funds are not used, at least not spending that 10% could be considered a bonus or moved to the moving cost budget. Also, make sure that you keep your council bills up to date so that there is no burden on you to settle a large amount.