What are transfer costs when buying a house?

Transfer costs are the amounts you pay to move the property out of the seller's name and into yours at the Deeds Office. They are the buyer's expense, they are payable in cash before registration, and they are not covered by your home loan. The big items are transfer duty to the South African Revenue Service, the transferring attorney's fee, the Deeds Office registration fee, and, if you are buying with a bond, a separate set of bond registration costs.

Because transfer duty brackets and Deeds Office fees are adjusted regularly, this guide explains what each item is rather than quoting amounts. For current numbers, use the transfer costs calculator, which is updated each tax year.

Transfer duty

Transfer duty is a tax on the acquisition of property, paid to SARS by the buyer. It works on a sliding scale: below a threshold no duty is payable, and above it the rate steps up in bands as the purchase price rises. Both the threshold and the bands change in the annual Budget, so always check the current table.

Two points catch people out. First, transfer duty is calculated on the purchase price or the fair value of the property, whichever is higher, so an unusually cheap sale between family members can still attract duty on the market value. Second, if the seller is registered for VAT and is selling in the course of their business, for example a developer selling a new unit, the price normally includes VAT and no transfer duty is payable. You cannot be charged both.

The conveyancer pays the duty over to SARS on your behalf and obtains a transfer duty receipt, which the Deeds Office needs before it will register the transfer.

The conveyancing fee

The transferring attorney, called the conveyancer, is nominated by the seller but paid by the buyer. That is the convention in most South African sales, and the offer to purchase will say so.

The fee follows a recommended guideline tariff that rises with the purchase price. It is a guideline rather than a fixed price, so firms may quote a little above or below it, and VAT is charged on top. Ask for a written quotation before you sign anything, and ask whether the figure includes VAT and disbursements.

The conveyancer does real work for this fee: drafting the transfer documents, obtaining FICA verification, applying for the transfer duty receipt, getting rates and levy clearance certificates, liaising with the bank attorneys, lodging at the Deeds Office and paying everything over on registration.

Deeds Office and disbursements

The Deeds Office charges a registration fee that also steps up with the value of the property. On top of that sit smaller disbursements: FICA and search fees, postage and petties, an electronic document generation fee, and the cost of the deeds search itself. Individually they are small, but together they add up to a noticeable line on the statement of account.

Clearance figures and rates

Before the Deeds Office will register, the municipality must issue a rates clearance certificate confirming that municipal accounts are settled. The municipality requires several months of rates, water and electricity to be paid in advance, and the seller usually funds this. Any unused portion is refunded to the seller afterwards.

If the property is in a sectional title scheme or an estate, the body corporate or homeowners association issues a levy clearance certificate on similar terms. See How to dispute body corporate levies if the levy figure looks wrong.

From your side as buyer, you will normally be asked to pay a pro rata share of rates and levies from the date of registration, and occupational rent if you move in before registration.

Bond registration costs

If you are financing the purchase, the bank appoints its own attorney to register the mortgage bond over the property. This is a completely separate account from the transfer, and you pay it too.

Bond costs also follow a guideline tariff based on the bond amount, plus the Deeds Office bond registration fee, a bank initiation fee and disbursements. A useful rule of thumb is to budget for transfer costs and bond costs as two similar-sized amounts, not one.

Buying cash means you skip bond costs entirely. If you are taking over an existing property with a bond on it, the seller pays their own bond cancellation costs.

A worked example

Names and figures are illustrative, and the cost lines are deliberately left to the calculator because they change every year.

Naledi signs an offer to purchase on a freestanding house in Bloemfontein for R1 500 000. She puts down a R150 000 deposit with the estate agent and the bank approves a bond for the R1 350 000 balance. Within a fortnight she receives two separate pro forma statements.

The first, from the transferring attorney, lists transfer duty on R1 500 000, the conveyancing fee plus VAT, the Deeds Office fee, FICA and search disbursements, and a pro rata rates contribution from the expected registration date. The second, from the bank's attorney, lists the bond registration fee plus VAT, the Deeds Office bond fee, the bank's initiation fee and disbursements.

Naledi runs the same purchase through the transfer costs calculator and the two totals match the statements closely. She now knows she needs her R150 000 deposit plus a further cash lump sum for the two accounts, none of which the bank is lending her. Had the seller been a developer selling a new unit as a VAT vendor, the transfer duty line would have fallen away entirely, which is why she checked that clause in the agreement first.

Buyer's costs and seller's costs side by side

The buyer normally pays: transfer duty; the conveyancing fee and VAT; the Deeds Office transfer fee; disbursements; bond registration fees and the bank initiation fee; pro rata rates and levies from registration; occupational rent if occupying early; a home loan protection policy if the bank requires one.

The seller normally pays: estate agent commission; bond cancellation attorney fees; any penalty for short notice of bond cancellation; the rates and levy clearance figures in advance; the electrical compliance certificate and, where applicable, plumbing, gas, electric fence and beetle certificates; arrear rates, levies and any special levy already raised.

The offer to purchase can move any of these, so read the costs clause before signing rather than after.

When each cost falls due

• Offer accepted. Deposit paid to the agent or conveyancer trust account, usually within a few days.
• Bond approved. The bank attorney sends the bond costs statement. Payment is usually requested within a couple of weeks.
• Documents signed. The transferring attorney sends the transfer costs statement and asks for payment, often a month or more before registration.
• Lodgement. Nothing lodges at the Deeds Office until both sets of costs and the transfer duty are paid and the clearance certificates are in hand.
• Registration. Rates and levies from this date are for your account. See How long does a property transfer take?.

Documents to gather

The conveyancer and the bank attorney will both ask for FICA documents, and delays here are the most common reason costs statements and lodgement slip. Have ready:

• your identity document, and your spouse's if you are married
• your marriage certificate and antenuptial contract if you have one, or a divorce order if relevant
• proof of residential address not older than three months
• your income tax number
• proof of the source of your deposit if the bank asks for it
• the signed offer to purchase and the bank's grant letter

Common mistakes and what they cost

Assuming the bond covers the costs. It does not. Buyers who discover this after signing either scramble for cash or lose the sale and the deposit.

Confusing the two attorneys. The transfer and the bond are separate accounts from separate firms. Paying one and thinking you are done is a frequent cause of a stalled transfer.

Not checking the VAT position. Whether the seller is a VAT vendor changes the biggest line on the statement. Confirm it in writing before you rely on a figure.

Paying late. A transfer cannot lodge until costs are paid. Every week of delay is a week of occupational rent, or a week without the keys.

Ignoring the costs clause. Some agreements shift certificate costs or even the seller's bond cancellation to the buyer. Read the clause.

If money is tight

Ask the conveyancer whether the fee can be quoted at or below the guideline; it is a guideline, not a fixed tariff. Ask your bank whether it offers a separate costs facility for qualifying buyers, and what that costs in interest. Ask whether you qualify for a government first-time home buyer subsidy, which is income-tested and can reduce the cash you need. And run the calculator before you make an offer, not after, so the price you offer is one you can actually complete.

What is not a transfer cost

Estate agent commission is paid by the seller out of the proceeds, not by you. The electrical compliance certificate, and depending on the area the plumbing, gas, electric fence and beetle certificates, are also normally the seller's responsibility, though the offer to purchase can shift them, so read that clause.

Budgeting sensibly

Ask the conveyancer for a written pro forma statement of account as soon as the offer is accepted. It should list every item, show VAT separately, and state which amounts are estimates. Compare it against the transfer costs calculator and query anything that does not match.

Have the cash ready. Transfer costs are usually payable within days to a few weeks of the offer being accepted, well before you get the keys, and a delay in paying them is one of the most common reasons a transfer stalls.

LawMatch is not a law firm and this page is general information, not legal or tax advice about your purchase.