Cost allocation is often one of the most misunderstood aspects of property transactions.
“The general rule is fairly simple,” says Antonie Goosen, principal and founder of Meridian Realty. “The buyer usually pays the costs associated with transferring ownership, while the seller pays the estate agent’s commission.”
READ: From sale to transfer: How buyers and sellers can avoid costly delays
Transfer duty, which is a tax payable when property ownership changes, is typically paid by the buyer unless the transaction structure falls within certain exemptions. In addition to transfer duty, buyers usually pay the conveyancing attorney’s transfer fee, Deeds Office fees and administrative charges associated with registering the property.
If the buyer obtains a home loan, additional costs arise in the form of bond registration fees and bank initiation costs.
“This is why it is so important for buyers to understand their full cash requirements before making an offer,” says Goosen.
READ: Understanding compliance certificates
Municipal rates clearance certificates and levy clearance certificates must also be obtained before a transfer can be registered. While sellers must ensure their accounts are up to date, the administrative costs associated with obtaining these certificates usually form part of the transfer process.
Estate agent commission, meanwhile, is typically paid by the seller from the proceeds of the property sale. However, Goosen emphasises that the Offer to Purchase ultimately governs cost allocation.
“While there are industry norms, the contract between the buyer and seller is what ultimately determines how costs are allocated,” he explains.
Clear communication around these costs early in the transaction process often prevents confusion later.
“When buyers understand the financial structure of the transaction from the beginning, it builds confidence and helps transactions move forward more smoothly,” says Goosen.
READ: Guide: Understanding transfer duties and fees in South Africa
When selling your property, it is necessary for the conveyancer to obtain a rates clearance certificate (RCC) from the relevant local authority, or municipality, before transfer can be registered in the Deeds Office.
According to conveyancers and property Law attorneys at Abrahams & Gross, the RCC issued by the city council certifies that there are no outstanding funds due to the municipality at the time of the registration of transfer to the purchaser. This certificate is required under the Municipal Systems Act and must be lodged in the Deeds Office for registration. The Registrar of Deeds will not register the transfer of a property unless the conveyancer lodges a valid RCC along with other required documents at the Deeds Office.
READ: What compliance certificates do I need when selling my home?
Rates Clearance Figures
The conveyancer will make application to the city council for the issuing of rates clearance figures. Rates clearance figures are comprised of all arrears amounts for rates, taxes, electricity, water, sewerage, and refuse, as well as an advance payment covering a period of 60 days being the period of validity of the rates clearance certificate (municipality may require up to 120 days).
Whose responsibility is it to obtain a rates clearance certificate?
It is the seller’s responsibility to settle amounts due in order to obtain the RCC. Upon request, the seller must pay the conveyancer and not the city council directly. The conveyancer will then pay the city council to ensure that the payment is linked to the application number in respect of the transfer as well as for the purposes of expedition of the issuing of the rates clearance certificate.
Once the conveyancer has paid for and obtained the RCC, the seller’s account at the city council will be in credit and the seller will no longer be required make any further monthly payments to the city council prior to transfer.
Once registration of transfer has been completed, the conveyancer submits a refund form to the city council in respect of any credit that maybe be due to the seller. This usually occurs when the registration of transfer takes place prior to the expiration of the 60-day period. The city council can take approximately four to seven months to reconcile the seller’s and purchaser’s accounts and pay the refund.
This article is based on information provided by the Conveyancing and Property Law team at Abrahams & Gross. While care has been taken to ensure accuracy, the content is provided for general information purposes only and should not be regarded as legal advice. Always consult a qualified attorney for guidance on your specific circumstances.
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