What To Know About Buying a Home

Are you a first-time home buyer and have no idea where to start?

Most people do not buy properties daily, yet I have seen seasoned property investors make the simplest of mistakes.  Whether you are a novice or an expert, BEFORE you enter into a valid and binding agreement of sale with various suspensive conditions and duties placed on the parties, read below to find out what I have learned.  It could save you a lot of money and hassle.

In this article I’ll cover my top 6 tips to consider before buying a property, so that you get the best deal, whatever your goals are.

Here are my top 6 items to consider before buying a property, no matter where it is.

1. Do your homework about the area
2. Inspect the property
3. Budget for the expenses
4. Read the contract BEFORE you sign it
5. Finance the purchase
6. Sectional Title or Full Title (ERF)?

 

1. Do your homework about the area

• Location, location, location has never been so true,

whether you buy in North Carolina, Namibia or Nieuwoudtville.  Each area in a town has different statistics with regards to hospitals, schools, shops and even crime rates.  Contact a private security company in the area and find out what the crime statistics are to ensure that you buy a home in a safe area.  This will impact your re-sale value when you decide to sell or rent out to tenants.

• Look for a home within a good school district. It’s been proven time and time again that it’s a good investment to buy property in a good school district.  Every school has a “catchment/feeder area” and accordingly they have to accept children to the respective school, that reside in that area.    Ring the school to find out which neighbourhoods fall within their feeder area.  Even if you do not have or plan to have kids, someone who does, will be interested in your home.  Demand drives prices.
• I know we all want to live in a safe neighbourhood.  If you are an out-of-town buyer, relocating to a new city, just give the local security company a call to obtain the crime statistics in the areas that you are considering.  Crime directly impacts the value of properties in an area.  Once the crime takes over…even the best investment can go belly-up.  Even though a property is cheap with a nice rental income to cover all the expenses…it means nothing if you can’t sell the property when you need to.

 

2. Inspect the property beforehand

• Sounds simple enough, but I am shocked when I hear about someone buying a property “sight-unseen”.  Why is that even a word?  Yes, there are people that are so pressured to find a new home, that they just blindly put in an offer and buy a home without inspecting it.

Unless you purchase a brand-new property from a developer who must fix any snags in the home after you move in, second hand properties are normally sold voetstoots.  Voetstoots is a Dutch legal term for “as it stands there” with all the defects that exists whether you can see it or not.  Only in extreme and special circumstances will you be able to claim damages from the previous owner if there are unseen defects.  Even then, you’ll have to get the attorneys involved, who charge fees from the get-go, whether you win on loose the fight.

• Do a proper inspection of the property.
• Contact an area specialised estate agent(preferably one that lives in the area that you are interested in) for a report on the area.  When it comes to estate agents, work on recommendation – a good estate agent will enquire about your needs and suggest what is best for you.  Word of mouth advertisement is essential to them.
• Notaries and Conveyancing Attorneys like me can also do a due diligence inspection on the paperwork behind a property.  We have a look at the Title Deed to see if there are any restrictions on what you are or are not allowed to do with the property, how big the registered property is and if there are any interdicts against the property, that you intend to buy, prohibiting the property from being used for the purpose for which you are buying it.  There is no use in buying a property, for example to use as a business premises, if the title deed contains conditions prohibiting it.
• a Town Planner can also advise on the zoning of the Property and what the restrictions for the properties in the area that you are looking into, is.

 

• Once points 1-3 above meet your requirements, instruct a qualified home inspector to attend to a proper inspection of the structures on the property.  I am not an engineer, builder or contractor of trade.  I won’t know the difference between a hairline crack in the plaster or a structural crack.  I am very sure that most people don’t, so why not instruct someone who does?  Rather spend a few rand on a professional to point out the issues in a property.  This not only helps you with;

• determining and bargaining on the Purchase Price, but it also
• helps with budgeting on future expenses and maintenance on the property.

There are a lot of building- and property inspectors even here in Port Elizabeth.  Just go onto the internet and start searching.

• Ask for a copy of the building plans. The owner of the Property should have the approved building plans.  The Municipal Approved Building Plans will indicate what structures are allowed on the Property.  If the building plan and the actual structures do not match up, there is a problem.  You can use this as leverage to negotiate the Purchase Price, but also, you’ll be aware of what you are buying.  A town planner will be able to advise on how to fix the problem and if it is in fact fixable.

3. Budget for expenses

• You will not necessarily be responsible for the estate agent sales commission (make sure of this in the Sale Agreement document), the Seller is, but it is common practise that the purchaser is responsible for the costs to take transferor the property.  Make sure that you read the Agreement of Sale before signing the document, so that you are aware of who pays for what.

Here’s my list of the expenses and fees to look out for.

• Transfer Attorney fees:  a Transfer Attorney/Conveyancing Attorney will make sure the property is transferred from the Seller into your name.  Their fees depend on the price that you pay for the property.  Attorneys have recommended guideline of fees that they are entitled to charge a client.  Thus, the higher the price, the more the transfer attorney will be entitled to charge you for the work that they do. Just ask for a quote to budget accordingly.
• Mortgage Bond registration Attorney fees: If you require a loan to cover the sale price, or a portion thereof, the financial institution (normally a bank) that is willing to lend you the funds, will appoint an attorney that will register the mortgage bond on their behalf, for you.  Again, the fees will be determined on how much you borrow. The more you borrow, the higher the attorney fees will be.  I would register as big a bond as the bank will allow.  In the long run, it works out cheaper on fees to register a bigger bond initially than registering a second or third bond later.
• Transfer Duty Tax; in terms of the Transfer Duty Tax Act 40/1949 (as amended) the South African government levies a tax on the acquisition of property. Follow this link for a detailed explanation on SARS’s website on how Transfer Duty practically works.https://www.sars.gov.za/types-of-tax/transfer-duty/

Every year the Minister of Finance decides how this type of tax is calculated.  It works on a scale.  All you need to know is this; If you buy a property with a value of more than R1 200 000.00 (south African rands) you as purchaser will be liable to pay transfer duty tax over and above the transfer- and bond attorneys’ fees.  What the amount of this tax will be, is determined on the Purchase Price.  The higher the Purchase Price, the more tax you are liable to pay.

The only time when Transfer Duty Tax is not payable by the Purchaser, is when (i) the Seller is registered for Value Added Tax (VAT), in terms of the Value Added Tax Act 89/1991 (as amended) and (ii) the transaction is a “VAT-able” transaction. That is why buying from most developers are cheaper on costs, than buying a second-hand property from a private Seller – the Developer pays the VAT and you don’t have to pay the Transfer Duty Tax.  Just make sure if the Price for the property includes or excludes the VAT.

• If you are purchasing a sectional title unit, then levies are also collected as part of the transfer attorneys’ expenses.  These funds are to be paid in advance by the transfer attorneys on your behalf.  Each sectional title complex is different, thus the amount collected by the Attorneys will differ depending on the property.  Its normally 1-2 months’ levies that are collected and paid in advance as a credit on your levy account.
• You also have to pay municipal rates and taxes(property tax) in advance. How much, will depend on the municipality.  Each property has set municipal rates and taxes for each area and each property.  A simple enquiry to the municipality can provide you with this information.  Normally 2 months’ worth of rates and taxes are charged onto your bill by the Attorneys, to pay on your behalf towards the Municipality.
• Moving vans; it’s cheaper to plan the move out of your current home into your new home at any time OTHER than the end of the month.  Contact 2 services providers for quotes.  Most moving companies have different options, depending on your needs.
• You must give notice to your landlord when you intend to cancel your current lease and move out into your new property.  Read your current lease agreement and provide ample notice to cancel same.  Make sure you won’t be liable for a penalty to opt out of your lease agreement.  Maybe you need to find a replacement tenant for the landlord or wait a few months?  If you have all the info, you can plan accordingly so that you won’t lose your deposit or incur a penalty.

4. Read the sale agreement BEFORE signing it

• This sounds obvious, but I’ve seen experienced property investors just blindly sign a sale agreement shoved into their hands.  Read…the…document…first. Once you have signed the contract, you put pen to paper and are bound by the terms of the Agreement.  It cannot be changed without the consent of all the parties involved. There are a few Latin legal terms for this, so be careful.
• Or better yet…contact an attorney to draft the document upon your instructions for you.  An attorney will take your instructions to the letter, draft an “Agreement of Sale” for you upon your terms and you can sleep sound, knowing that all the fine print is taken care of.
• Most attorneys are also willing to read an agreement of sale that was given to you by the Seller or Estate Agent, to make sure that you are satisfied with the terms of the document.  This is money well spent.
• I know that legal jargon is confusing to most people – even other professionals struggle to understand the consequences of the terms of an agreement of sale, but instead of just ignoring it and skipping over terms that you don’t understand…consult with an attorney who specialises in Property Law and let them explain the terms of the agreement to you so that you understand the consequences and exactly what you are signing.  The fees that an attorney will charge for their professional opinion on a document, will be far less than the costs of litigation after the fact.  Don’t be penny wise but pound foolish.

5. Financing the Purchase

• Most property transactions are financed by a lender.  A bank/financial institution fronts you the money (or part thereof) upon certain conditions being met.  The process is two-fold

1. The Lender looks at your personal situation; i.e. can you afford to repay the loan amount monthly and then
2. The Lender does a property valuation to determine if the property you want to purchase is worth the value of the loan that you ask for, to purchase said property.

If the Lender says “yes” to the above, then the loan will be granted.

The Lender can request the following requirements, for example.

• A mortgage bond must be registered over your new property, in favour of the lender.  This means you cannot dispose of the property before first arranging to settle the outstanding amount due to them.  Furthermore, should you default on your bond repayments, the lender can attach the property and sell it, to cover the outstanding debt to them.
• You’ll be required to take outlive insurance, to settle the outstanding debt owed, should you pass away before you repay the full amount.
• Property insurance to cover Property against damages.  If the property is bonded as security and should damages occur for example wind, hail, fire or other disaster, the lender will be safe in knowing that the insurance company will repair the damage to their security.

 

6. Full title or Sectional Title

• With a Full Title Property, you will own the Property, be responsible for the upkeep of the entire property and you will be responsible for the property insurance, property rates and taxes and services.  You will not share the use of certain areas with other owners.  Your services will be billed on your municipal account.
• With a Sectional Property Unit, you own a Unit in a sectional title complex together with other Property Owners.  Common Property areas such communal pools and gardens are shared and as such the upkeep and maintenance as well.  Decisions regarding common property areas are also shared and made by all owners during the annual meetings of the body corporate.  The municipal services for the Unit is billed on your levee account, which will also normally include the insurance for your Unit and the shared costs for the upkeep of the common property and security, that all the owners benefit from.

Which option you choose depends on personal preferences.  Just make sure you are well aware what you are purchasing, so that you can budget accordingly.

IN SHORT…

spending a bit of time on research and due diligence can be a big cost-saver.  You don’t have to be a property investor or businessman to do a bit of digging or ask the right person the right questions.

For a detailed consult on any of the points mentioned above, contact our offices for a personalised opinion or help with a due diligence investigation.

Disclaimer: Although I am an attorney by trade, 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 or my firm. I am not liable or responsible for any damages resulting from or related to your use of this information.