The first property I bought was a little apartment on the sixth floor of a block in Rondebosch. It was love at first sight. The process of buying it, however, was mind-blowingly stressful, even though I had good advice from family and a darling estate agent. It was like trying to arrange a wedding, but with much more money at stake. In the end I lived happily ever after for about six years until I was ready to go through the other painful life event of selling to move to a bigger place.
What makes buying a home such an ordeal for everyone is that it’s a huge step, which will affect your future happiness. It also has bearing on fortune: property is usually your biggest asset. And it has an impact on daily life: monthly expenses in the form of bond repayments, rates, insurance and maintenance will determine whether or not you can afford to buy that gorgeous pair of shoes, a new set of golf clubs or if you’re eating Salticrax at the end of the month. Gulp! That’s a lot to digest if all you’ve been doing previously is handing over a few grand monthly rental to a landlord. But there are ways to ease the transaction.
STEP ONE: Check your credit record
“Before you do anything make sure your credit record is clear,” says Deon Lessing a principal agent for Chas Everitt on the Western Seaboard. “If you apply for a bond and it’s rejected because you’ve got a dodgy credit record, this will count against you the next time you apply for finance. And it may be the bond was rejected because you owe a few paltry Rands for an outstanding TV license or something similarly easy to forget.”
You can run a credit check online through Trans Union at www.transunion.co.za. A once-off credit check is free to anyone who applies. If there are problems you can contact the call centre for advice, their agents are usually very helpful and knowledgeable in these matters. Once you know your credit record is clear, you can approach a bank for finance.
STEP TWO: How much can you afford?
If you’ve got savings stashed away for a deposit on a home, now’s the time to pat yourself on the back. Since the National Credit Act became law in 2007 it’s become particularly difficult to get a 100 per cent bond on a property and many applications without down payments don’t even pass begin. Before calling the bank to find out how much money it’s prepared to loan you, work out your monthly budget including entertainment, travel and food expenses plus any credit accounts and monthly bills.
Your bank’s home-loan division will give an idea of how much money it will lend so you know what’s available to spend. A ballpark figure is that 30 per cent of your gross salary may be allocated to a monthly home-loan repayment but many experts suggest that to avoid a situation in which you can’t manage the bond repayments, especially if interest rates start to increase in an upward cycle, aim for around 15 per cent of your gross salary. You can ask the bank for a letter stating the amount you provisionally qualify for, it sometimes adds a little extra bargaining power when negotiating on a sale.
STEP THREE: Know the hidden costs
The sale price is not the final cost of a property. The buyer must pay bond registration fees and transfer duty. An estate agent will help you work this out or you can get an estimate online at www.ooba.co.za. If the place you want to buy is owned by
a CC you need to get an accountant to check out the books, as you’ll effectively be purchasing that CC and will be liable for any debts owed.
STEP FOUR: Find a home to fit your wallet
One of the biggest risks home buyers face is over-extending themselves. The last thing you want is to find, a few months or years into owning the home, that you can’t make the bond repayments.
There are three ways to purchase a home, each has its merits and pitfalls.
1) Direct from the seller – here you respond to an advert and there is no estate agent to facilitate the transaction. The seller won’t have to pay agent’s commission (usually around 7,5 per cent of the sale price) so you might be able to negotiate a discount on the purchase price. However, estate agents are very useful when it comes to handling the all-important sale agreement. There are lots of homes for sale online, and lots of scammers too.
2) A good agent is a gem, though some are better than others. Forewarned is forearmed.
3) On auction – auctioneers will also facilitate the sale, though you need to do your homework on the property first.
STEP FIVE: Buy NOW to sell later
A good estate agent should be able to give you a lot of valuable information on the area surrounding the property, including the sale prices of similar homes nearby so you can get an idea of the growth potential of your investment. In all likelihood a time will come when you want to sell, so don’t ignore the resale potential when buying. Here position counts for a lot.
Is the home in a neighbourhood that would be desirable to others? Proximity to schools, shops and other amenities will affect this. Take a drive around the area to see what building developments are taking place and the level of service the municipality is delivering.
STEP SIX: Check for structural defects
The onus is on the seller to declare structural defects, but remember that it can be expensive, stressful and time consuming to engage in a legal battle over who is liable for the repair costs once a property’s been sold. Structural defects are often hard to detect but can be extremely costly to fix. If you don’t know what you’re looking for you can get a reputable builder to have a look before signing the offer to purchase.
If you have the budget, hire a structural engineer to do the building inspection and a pool engineer to check out the swimming pool. Be prepared to walk away from the place if the defects are too great – such as a defective roof, foundation or pool construction. Declare any findings in writing if you still wish to buy the property. These can be included in the offer to purchase to make the sale subject to the repair list.
If you buy a home and find defects, report them in writing to the agent and seller immediately and keep a clear paper trail of costs and correspondence – you may need to refer to it later.
STEP SEVEN: The offer to purchase
Once you’ve found a home you’re sure you can afford and suits your lifestyle, an estate agent will help you put together the offer to purchase. “What many people don’t realise is that this is a legal contract,” says Deon. “The seller can hold you to it.”
Be aware of some useful negotiating tools:
• You can put in an offer lower than the asking price. The seller may come back with a counter offer, which you can consider, counter again or you can walk away from the negotiation.
• You can request the estate agent to lower his or her commission to ensure a sale takes place. The agent may agree to do this, or tell you to get lost.
• When the property market is depressed, as it has been since 2008, it is called a buyer’s market. This means there are more homes for sale than there are people willing or able to buy them and the buyer often has the upper hand in negotiations.
• A cash buyer is more attractive to a seller than one who submits an offer subject to bond approval or the sale of another property.
STEP EIGHT: Living happily ever after
This feature is intended as a general guide, and isn’t the last word on buying property. For more specific information, contact a reputable estate agent or property consultant directly.
Ultimately, the responsibility is yours to be well informed and ensure you buy the right property that you can afford – bringing you one step closer to living happily ever after.
QUESTIONS TO ASK
• Are you buying the property as an individual, a CC or a trust? This will affect the cost to you as transfer duty is more expensive on CC and trust purchases.
• Is the property sectional title or freehold? Banks won’t usually give a bond on a freehold arrangement as you won’t be the titleholder of the deed.
• What are the rates on the property? You need to know this to budget correctly.
• How is the property zoned? Residential, agri-cultural, business, industrial? This will determine what you can do with the place. It’s also a good idea to find out how your neighbours’ properties are zoned, you don’t want someone zoned for industrial use starting a workshop on your doorstep, for example.
• Which municipality services the area? Visit the local municipality to find out what developments are pending for the area. The construction of a new shopping complex, for example, may improve the appeal of the neighbourhood, but plans to create a new landfill site 10 kilometres downwind of you will make life very unpleasant and could severely de-value the property in years to come.
• Visit the local police station to get an idea of recent crime in the area – this will affect your lifestyle and your insurance premiums. It’s also worth phoning your insurance company to find out if there are any premium loadings on that neighbourhood and to get an idea of what your insurance premiums will be to help with budgeting.
Big Mistakes to avoid making
Banks will offer financial guidance on how much money they’re prepared to loan for property. But don’t change your financial circumstances before the deal on your home is closed. If you suddenly go out and blow the roof off your credit card or buy a car that’s been financed, you may find you no longer qualify for the bond you’d hoped for and planned on getting.
Make sure you’ve bought the right house – if you don’t think you can live without an en-suite bathroom, then don’t buy the house (unless there’s money to renovate). Weigh up the impact seemingly small sacrifices will have on your lifestyle – your home should be your sanctuary, not a source of stress.