There are expenses when selling any type of property, irrespective if you/your company/your trust is the owner. The following is a list of the possible costs to be aware of. This is by no means a complete list, yet quite common.
- Cancellation penalty of the bank/financial institution
- Cancellation attorneys’ fees
- Certificates of compliance (COC)
- Municipal Rates and Taxes
- Estate agent selling commission
- TAXES
- PENALTY FOR SETTLING YOUR BOND
If you currently still have a mortgage bond registered over the property being sold, you will be penalised for settling the full outstanding amount due on your bond and cancelling your bond earlier than the full term of the loan, i.e. selling the property.
If you still have an amount outstanding on your mortgage bond when selling the property, the bank is entitled to charge a “penalty” for cancelling the bond.
When I say bank, I am referring to any financial institution that borrowed you the funds to purchase the property. Said financial institution secured the repayment of the loan by you by way of registering a mortgage bond over the property you purchased. That means that their requirements are to be met, prior to the bond being cancelled so that you can effectively sell the property to the purchaser.
The bank won’t make more money out of you on the interest of the loan for the remainder of the loan period…as such, the bank is entitled to penalise you for cancelling the bond prior to the full term of the loan repayments. (Refer to the rather large print in the loan agreement that you signed with the bank when you bought the property and signed your mortgage bond documents).
The penalty amount will depend on a few factors, such as the outstanding repayment period of your loan agreement with the bank and/or outstanding amount still due to the bank.
Here is the good news and where you can save; Most penalties will expire 90 days after notice is given to the bank of your intention to settle the outstanding amount on the bond by way of sale.
Therefore, just give notice to the bank that you are selling the property, when you list the property for sale. This is a massive save. Give this notice in writing (email should suffice) and demand on a response to confirm receipt of your notice…make sure you keep the proof. Once your property is sold, ask the transfer attorney to finish with the transfer procedure only 90 days after notice was given to your bank.
- ATTORNEYS’ FEE TO CANCELL THE BOND IN THE DEEDS OFFICE
A mortgage bond can only be cancelled in the deeds office that has jurisdiction over the property, by way of a conveyancing attorney that is allowed to cancel the bond on behalf of the bank/financial institution who borrowed you the funds to purchase the property.
We refer to them as panel attorneys, because they are the attorneys that are on the bank’s authorised panel to register and cancel mortgage bonds on the bank’s behalf.
The cancellation attorneys’ fees for cancelling the bond in the deed’s office, are in the vicinity of R6000 – R8000, depending on how many bonds need to be cancelled in the deed’s office and which panel attorney you use.
This is an additional fee and linked to cancelling the bond, so that transfer of the property to the Purchaser is practically possible.
- CERTIFICATES OF COMPLIANCE (COC)
When properties in South Africa are transferred between parties, Electrical & Wiring-, Gas- and Electric Fence System Certificates of Compliance are required by law on transfer date, yet a borer beetle certificate of compliance is optional depending on the terms of the Sale Agreement with the purchaser. (mental note).
Depending on the terms of the Agreement of Sale that you signed, (I’ll delve deep into that on my next memo) you are responsible to provide a COC to the Purchaser on transfer of the property to them.
The fees charged by a qualified contractor, for a certificate of compliance range between R450 – R600 for electrical- and borer beetle certificates and R900 – R1100 for electric fence- and gas certificates of compliance, respectively.
The above fees will vary from area to area, yet DO NOT include any of the possible repairs that the contractor will have to do, to comply with legislation and regulations, so as to be able to issue the certificate. Just like any other service provider, obtain quotes so that you can compare the proverbial apples with apples.
Only use a contractor that has a good reference. You need to trust that the contractor that quoted for the job, actually does a good job. In terms of the Agreement of Sale, the owner is normally responsible for the Certificate of Compliance that the contractor issues. If there are comebacks or issues on any of the work done, the Purchaser will knock on your door, and you are responsible irrespective of who you elected to do the job for you.
- MUNICIPAL RATES AND TAXES
If your municipal rates & taxes and/or levies (if applicable) are in arears, this problem can also be resolved. Even though said expense have to be settled prior to transfer of the property to the Purchaser, you do not need to settle it out of your own pocket if you do not have the funds available.
Settling this outstanding debt can be resolved by way of a short-term loan, if there are sufficient funds from the proceeds of the sale available to settle this short-term loan and the interest thereon.
There are a few “bridging” company to assist with a loan, so that the rates & taxes and services are settled for the property transfer to proceed.
These companies are short-term loan companies. They will charge interest for the funds that they borrowed you, to settle your debt. There are many of these companies, so again, obtain a quote. The interest that they will charge will depend on the amount borrowed and the time it takes to repay the short-term loan from the proceeds of the sale.
- ESTATE AGENT’S SELLING COMMISSION
If you do not already have a purchaser for your property, do not try to sell and market the property yourself just to save on paying the estate agent’s commission.
A good estate agent is an investment and will get you more out of the sale of your property. They not only weed out the time-wasters, but also the scammers.
Finding and pre-approving a buyer is their number 1 priority and it’s a job in itself. Qualified buyers that have the money to buy, is what you want – which unfortunately is currently very scarce.
Consider the following when hiring an estate agent. This is where you’ll not only save on expenses but also get the best value for money.
- Big estate agent firm vs small estate agent firm?
Which one do you choose?
The bigger estate agency firms have a big database of buyers, which means that they can match a purchaser for your property very quickly. In a slow economy however, a good quality buyer that can afford the bond repayments essential to buy your property, is VERY scarce.
On the other hand, small agencies have the benefit of personalised attention. Fewer clients mean that your agent can and will spend more time on marketing your property.
Find the estate agent that is specialised in the type of property that you are selling. The commercial property market and the residential property market is very different, with a different set of rules that apply for financing the purchase.
Here are a few questions to consider when hiring an estate agent;
- Which advertising platforms do they use and what exposure will your property get?
- Will an international buyer be interested in the property or are you marketing to the locals?
- Each property has a specific market. Is the agent’s marketing strategy right for your property?
- Does the estate agent have a rental department to help manage a sale for an investment buyer?
- What will the estate agent charge you for selling the property? It’s normally a percentage of the sale price.
- Does the estate agent have a list of qualified buyers for your property listing?
- Ask for an estate agent valuation on your property (its normally free except if the estate agent is a qualified valuator) and compare the prices and the respective services included in their fees. Beware of choosing the agent who gives you the highest valuation on your property. If it’s far more than what properties in that area and in that condition are selling for, think twice.
- An estate agency mandate is the agreement between you and the agent on what is expected of him/her and what their fees are for selling your property.
Read the fine print before you sign any documents. The mandate is a short document, and it will only take a few minutes to read. If you do not understand the legal lingo, make an appointment with an attorney. Paying a consultation fee to have a look at the paperwork, could save you thousands in litigation fees and damages.
- A good agent has practical advice on what to do to get your property in a sell-able condition. For example…there is no use in renovating your bathroom, if your garden was destroyed by the family dog. It sounds obvious, but very few people take the advice when given for free.
- TAX
When immovable property is sold, it triggers a specific type of income tax called Capital Gains Tax, if the Seller is an investor. If the Seller is not an investor and buying and selling property as a trade, the profit is taxable, over and above the VAT Tax (if the Seller is registered for VAT and the transaction is a VAT-able transaction). Taxes will not be deducted from the proceeds of the sale, yet it is a tax that you need to be prepared for.
For more info on how this works, you have to consult with a tax expert on the matter, because every person/entity’s situation will be different, depending on what else was sold during that specific financial year.
Also beware; if your taxes (any type of tax) are in arears with SARS, then SARS can issue a directive to the transfer attorney to pay any outstanding taxes directly to SARS from the proceeds of the sale. There is legislation that allows SARS to do this.
- OTHER
The above items are common expenses that the owner is responsible for when selling a property, yet each and every agreement of sale for a property is different, depending on the offer made by a prospective purchaser.
There are common practises when dealing with the sale of a property, but as a rule, the conveyancing attorney will follow the terms of the agreement of sale.
Make sure you are very familiar with the terms of the agreement that you intend to sign. The terms of the agreement will determine your costs and expenses of the transaction. There can be any number of other conditions that the purchaser includes in the agreement, that you as the owner will have to comply with, should you sign the agreement, for example.
- Making certain repairs to the buildings/structures on the property
- Providing approved municipal building plans for the buildings on the Property
IN SHORT…
A consultation fee is always cheaper than the hidden expenses that you could have avoided if you just had a bit more information beforehand. By the time the agreement of sale is signed, and you are called to sign your paperwork with the transfer attorney for the sale, it’s too late and you are bound by the terms of the agreement of sale.
Don’t be afraid to make an appointment to consult with a specialised attorney in any field that you need help with. Everyone’s situation is different and is cheaper to obtain advise beforehand, than fixing a problem after the fact.
Disclaimer: Although I am an attorney by profession, I am not YOUR attorney. This article is for informational and educational purposes only, does not constitute legal advice and does not establish any kind of attorney-client relationship with me. I am not liable or responsible for any damages resulting from or related to your use of this information.