You'd expect to make some money when you sell your R1 million home but there are some costs you need to work into your budget before you spend that money. Some of the costs are uppermost in your mind, like the chunk of money you're going to pay the estate agents, and some are not so obvious.

Agent's Commission

This amount will have been written into the Offer to Purchase Agreement even before signing. Estate agents normally have a standard filled in figure of 7.5% (EXCL VAT) in the contract. Don't gladly accept this, even when the agent tells you that this is the commission recommended by the Estate Agency Affairs Board. It is negotiable and in some cases can be very negotiable. Make sure you negotiate an agreeable commission before signing the contract.

Using a home of R1 million as the example, this 7.5% is a hefty R75 000. Even if successful after haggling down to a 5% commission you need to make provision for the VAT component of this commission which adds another 14% to that amount or 0.7% to that hard-won 5% or another R7 000 on that R1 million home.

Compliance Certificate

Legislation has just been implemented in Gauteng that requires estate agents to request a valid Electrical Compliance Certificate (ECC) on accepting a mandate to sell your home and even if you've slipped through the cracks this time, you'll still be required to provide one before the new owner takes transfer. Budget an amount of R3 000 for this privilege.

Local Council costs

The conveyancer will hold back an amount on behalf of the local council to cover rates, taxes and water and light. In some instances the council may reserve an amount to cover up to 6 months of services. Although this money does get repaid it is an amount that will be missing from that lump sum payment you're expecting.

Bond cancellation

Banks will charge you a fee for the bond cancellation. This is in the region of R1 000. This will be deducted from the amount the bank repays you.

Penalties

The banks have over the last few years also instituted some fine print that allows them to extract another amount when canceling your bond. You'll find that your bond agreement requires you to give the bank 90 days notice of cancellation. The penalty is called an interest penalty and is the total amount of interest that would be charged over the 90 days. This penalty is a pro rata rate over the 3 months but if your transfer does manage to go through within 2 months you'll be in for a shock to the extent of R10 000 on a R1 million home. The initial amount would have been around R25 000. This amount is not normally negotiable with your bank.

And more penalties

There is another penalty that most banks charge. This is a penalty for early bond cancellation. This normally applies in the first year and requires that you have the bond for more than a year before giving notice over and above the 90-day notice period. Some banks will be more lenient in waiving this penalty but even then will insist that you service the bond for a minimum of 3 months before cancellation and then also comply with the notice period. The waiving of this bond is normally linked to taking out another bond with the institution.

Moving

Remember to budget for the other costs. You have to leave those blinds behind unless you've specifically excluded them in the Offer to Purchase, so budget for some new ones. Things like moving, carpet cleaning, new blinds/curtains and furniture will all put a dent in your pocket. Budget from R4 000 to R50 000.

Tax

If your home was purchased in a legal entity other than your private name, you'll have to cough up for Capital Gains Tax (CGT). Even if purchased in your private name, be prepared to make provision for this tax if your profit on selling is more than R1 million. Depending on the method used to calculate your base cost this might be anywhere up to 10-15% of the profit.

Some Tips

• Don't buy and immediately on-sell without checking out the penalty implication with your bank.
  
• Give notice on your bond as soon as you've decided to sell your home. The sales process will take up some of the 3-month notice period. (Negotiate with your bank on these two items.) If necessary you need to drag the transfer process out to avoid this penalty. Speak to your conveyancing attorney.
  
• Get the Electrical Compliance Certificate ready.
  
• Negotiate with the Estate Agents on their commission prior to awarding the mandate and then keep negotiating right up until signing of an Offer To Purchase.
  
• Try and move mid-month to save on moving costs. Make your old curtains work for a living.
  
• Check out your tax situation.

Conclusion

As can be seen by the above, you might have to budget for upwards of R100 000 just to sell your R1 million house, so before hitting the Caribbean with the proceeds, do your sums carefully.

Article by : Dave Welmans - (www.thepropertygame.co.za)