Advice and Opinion

First-time buyers and sectional titles – be prepared

Sectional title Lew Geffen Sotheby's
Densification and the proliferation of sectional title properties in Johannesburg have afforded cash-strapped buyers an accessible entry into the property market, but understanding the unique requirements for transactions in this sector is essential to a seamless sale.

Johannesburg’s burgeoning sectional title sector has been attracting the lion’s share of first time buyers in recent years by offering a more accessible step onto the property ladder and a stepping stone from which they can upgrade within a few years.

So, when that time comes, it’s a natural assumption that the sale process will be a walk in the park compared to the angst of navigating the complicated legal waters of the first buy.

But not necessarily so, according to Sandy Geffen, Executive Director of Lew Geffen Sotheby’s International Realty in South Africa, who cautions that this transaction has its own unique set of requirements that are more complex if the property is sectional title.

“Selling an apartment or townhouse is different to selling a house because it is part of a larger property with a community of owners and overseen by a governing body, the body corporate”.

“Therefore, in addition to the standard documentation required for a property sale, you will need a levy clearance certificate from the body corporate and the buyer’s bank also needs documentation from them to assess the financial status and management history of the sectional title scheme before they approve a bond.”

Geffen cautions that if a seller waits too long to request these documents, the approval process and sale could be delayed.

She adds that although it’s not a legal requirement, it’s also a good idea to give prospective buyers a copy of the schemes rules and regulations before signing the offer to purchase.

“Some schemes have strict rules regarding factors like pet ownership or the number of occupants allowed per unit and if they are not brought to the buyer’s attention beforehand it can cause problems down the line.”

Specialist Conveyancing Attorney Elana Hopkins of Dykes Van Heerden Incorporated says: “Sellers who embark on this transaction for the first time can be in for a rude, and often costly, awakening if they aren’t aware of what is required to complete the sale or if they leave everything until the last minute when a number of fees are due”.

“Property owners are required by law to ensure that the property is legally fit for sale and before the transfer can take place, the transfer attorney must be in possession of the relevant Certificates of Compliance. While these usually only take a few days to acquire, if any problems are discovered which require repair it could not only delay the transfer but also seriously dent the pocket at a time when you can least afford it.”

Seller’s conveyancer should also apply for their municipal rates clearance certificate as soon as possible so as to avoid any unpleasant surprises as unanticipated outstanding amounts will have to be settled before the property can be transferred.

Over and above these costs, sellers must also budget for the following:’

Estate Agent’s Commission

This is due once the transaction has been concluded, and is usually payable upon registration of transfer from the proceeds of sale. The average estate agent’s commission usually ranges up to about 7.5% however this is not regulated in South Africa and there is no set rate.

Bond cancellation – conveyancer’s fee

This is the conveyancer’s fees for the cancellation of an existing bond over the property. To avoid further costs in the form of penalties, the seller must give the bank at least 90 days written notice prior to the intended cancellation date.

Body corporate and home owner’s levy (if applicable)

The body corporate or home owner’s association might require payment from the seller of a portion of the body corporate levy figures until date of transfer.

Municipal provision for rates and taxes

This covers all rates and taxes that are payable in advance by the seller. It varies from one local authority to another, in accordance with the valuation of the property but it is wise to budget an amount of around R 5 000 per property.

Capital gains tax– This tax could apply if you sell your property at a profit, although there is a R2 million limit on “primary residence” sales.

Geffen adds that it’s also important for first time sellers to familiarise themselves with how mandates work before they put their home on the market to avoid the risk of forking out double commission.

“The risk arises most commonly in an open mandate scenario when more than of the agents introduces the same buyer to a property because when that buyer submits an offer to purchase, the other agent can claim that they introduced the buyer to the property and/or that they were the effective cause of the sale.”

“There are also a number of other factors that both buyers and sellers should be aware of when buying or selling sectional title property as they can have significant consequences,” says Geffen.

“If the body corporate has an 80% quorum vote they can now prohibit units from being rented out on Airbnb which many owners in sectional title complexes find invasive and a security risk”.

“It’s also prudent to check the city plans to see if there is any planned construction in the surrounding area as a new development could obstruct your views and are also likely to be noisy and disruptive”.

“Finally, it’s essential that the managing agents are an efficient company with an experienced Body Corporate team with a good track record in place.”

Geffen concludes that although the transaction may sound daunting, if sellers take the time to familiarise themselves with the process and cost involved to ensure that they have covered all their bases, it will be a lot less stressful.

“Being prepared will also allow you to save money from the get-go rather and will minimise the possibility of ending up with a mountain of unforeseen debt”.

“Finally, the best safeguard is to enlist the services of a knowledgeable and experienced estate agent who will guide you through the entire process and is also essential to successfully and seamlessly navigate potentially crippling administrative and financial minefields.”