Home buying hidden costs – what should I budget for upfront?

Purchasing a home is one of the most significant – and expensive – decisions you will make in your lifetime. And while some first-time buyers are under the impression that being granted a 100% home loan – and not having to put down a deposit – means that they are exempt from upfront costs, they are mistaken.

The home buying process does not end once the buyer and seller sign the contract” explains Rhys Dyer, CEO of ooba Group. “It is important that potential buyers familiarise themselves with the legal and administrative costs involved in officially transferring ownership of property”.

These costs, taking into account conveyancing fees and transfer duty, can total tens of thousands of Rands so buyers need to be prepared and have the funds available. If they don’t, poor planning could derail their dreams of homeownership”.

Conveyancing fees

Once a buyer has their Offer to Purchase (OTP) accepted by the seller, a conveyancing attorney is needed to legally transfer ownership to the buyer. There are three kinds of conveyancing attorneys involved in this process: bond attorneys, transfer attorneys, and cancellation attorneys. The buyer is responsible for paying the fees of the bond attorney and the transfer attorney.

Dyer breaks down the key differences between the two:

A bond attorney is appointed by the buyer’s bank after a home loan is granted. They register the new bond over the property in favour of the bank that is financing the property and preparing the required legal documentation for the buyer sign. The bond attorney is a once-off fee that must be paid upfront, and this fee is calculated on a sliding scale in relation to the cost of the property or the bond amount.

A transfer attorney is appointed by the seller, but their fees must still be paid by the buyer. They ensure that property ownership is legally transferred from the seller to the buyer and the lodging of a ‘Record of the Sale’ with the Deeds Office. Like the bond attorney, their fee is calculated on a sliding scale in relation to the purchase price or bond amount. However, they may charge for extra services as needed.

Conveyancing attorneys also charge a levy to cover small costs such as postage, petties, and FICA (ID and proof of residence) documents. This is usually a fixed rate and varies per law firm.

Buyers should note that conveyancing fees are the only portion of the transfer costs that are actually negotiable. These fees are equal to a percentage of the property value, but there’s no harm in talking to the attorney to see if a discount is possible,” Dyer recommends.

Transfer duty and admin costs

Transfer duty, unlike conveyancing fees, is non-negotiable. This amount is a tax paid by the buyer to the South African Revenue Service (SARS) within six months of the property transfer.

There is no liability for transfer duty if a property purchase is cancelled before the transfer is registered at the Deeds Office or if the property is valued at less than R1 million.

Current transfer duties in 2021 are calculated as follows:

When calculating transfer costs, buyers should speak to the conveyancing attorney to find out if the seller is registered for VAT. If so, no transfer duty is payable, and the seller must have included VAT in the purchase price. This is often the case when buying a property in a new development,” says Dyer.

Another cost that first-time buyers need to be aware of is the bank initiation fee, payable to the bank for the processing of the home loan. This amount varies by bank but cannot exceed R6 037.

Also be sure to factor in other often overlooked costs such as moving costs, occupational interest, municipal rates and taxes, repairs and maintenance as well as home insurance.”

Start saving early

To avoid any nasty surprises when the time comes to pay the fees, Dyer recommends using free online tools such as ooba’s Transfer Cost Calculator to get an accurate idea of how much a buyer should set aside for legal and administrative costs based on the purchase price.

As an example, the registration and transfer costs on a R1 407 071 home (the country’s average purchase price according to the latest oobarometer stats) are:

Bond registration (attorney) fees (incl. VAT): R29 394

Bank initiation fees (incl. VAT): R6 037

Post, petties, FICA, and other administrative fees (incl. VAT):  R2 400

Property transfer (attorney) fees (incl. VAT): R29 394

Transfer duty: R13 174

Total: R80 400

It is important to put money aside each month and start saving early so that you will be able to pay these lump sums when it comes time to sign on the dotted line. Otherwise, you risk going into further debt or worse yet, having the property transaction fall through and having to give up the dream of becoming a homeowner,” he concludes.