Conveyancing fees and how they work

Conveyancing fees and how they work
28 Jan 2021

When someone finds their dream home, they often tend to focus on the numbers directly in front of them – like the purchase price. And then if they are in any way décor inclined, will consider costs for remodelling the bathrooms and kitchen (which seemingly always need updates). R10k here, R5k there. It all seems doable, your imagination running wild. And then suddenly there is mention of “additional expenses” and your world comes crashing down – firstly what are they and can you actually afford them? With dreams of remodelling your kitchen dissipating into thin air, you begin the arduous task of trying to understand what all these additional expenses associated with buying your home truly are.

What exactly are these additional expenses?

Once you have chosen your dream home and put in your offer to purchase (da-da-da) there are some additional expenses you will need to cover. Reality sinking in, you start to wonder with increasing anxiety, what these expenses actually are…

Besides the obvious additional expenses like moving costs, insurance costs and rates and levies, a buyer needs to cover transfer costs. Transfer costs (which is a combination of conveyancing fees and transfer duty) will most likely be your biggest expense (after the bond registration costs, purchase price and of course, your kitchen remodel). And these costs are unavoidable. No matter the brilliance of your negotiation skills.

Firstly, what is conveyancing?

Conveyancing relates to the legal process that transfers ownership of the home from the seller to the buyer. The conveyancer (who is an attorney) is usually appointed by the seller, but paid for by the buyer and this, according to Bill Rawson Chairman of the Rawson Property Group in an article titled Conveyancing fees: what are we paying for, is only because –

“the seller is at greater risk during the transaction, and stands to lose more if things go wrong. The fact that the fees are normally covered by the purchaser is simply a matter of convention. Neither of these things is set in stone, however, and you can always negotiate a different arrangement in your agreement of sale.”

Great. But what exactly do conveyancers do and how are the conveyancing fees calculated?

Two key questions when understanding the true cost of buying your home –

What do conveyancers do?

A conveyancer performs a vital function when completing a property transaction. In fact, you would not be able to call yourself the “owner” of a new property without one. They are kind of like the Superhero’s of the property world. Without the capes (that we are aware of).

In all seriousness, conveyancers attend to the process of actually transferring legal ownership of fixed property from one person (or a company or trust) to another. In a nutshell, this process amongst other things, involves ensuring the deed of sale meets all the legal requirements, including requesting and collecting supporting information (such as the mortgage bond, cancellation figures, title deeds from the seller’s bank, compliance certificates from the seller, and the amounts from the municipality for a rates clearance certificate). The conveyancer is also tasked with drafting all the necessary documentation (such as a “power of attorney to pass transfer” for the seller to sign, a declaration in respect of marital status, ID Number as well as the bond registration documentation for the purchaser when registering the bond) that needs to be lodged with the deeds office to finalise the registration of the sale.

And that is quite a complicated mouthful.

Bill Rawson, says that conveyancing can be –

“a time-consuming and complicated process, that requires a lot of specialist knowledge and extraordinary accuracy – particularly in less straightforward transactions that include things like subdivision or consolidation of properties, or the registration of servitudes….. no property sale can be concluded without having a qualified conveyancer on board”.

And now that we understand that a conveyancer is crucial to the overall transaction, we need to understand what we will be paying for this invaluable service.

How are conveyancing fees calculated?

Firstly, it must be noted that there are distinct and separate fees related to the overall transfer costs of a property. And conveyancing fees is only one of them. The others are transfer duty and bond registration costs.

To complicate matters, conveyancing fees are variable based on guidelines that are issued by the Law Society of South Africa (LSSA) and are not set minimums. Generally, they are calculated on the purchase price of the property (or the capital amount of the bond) which were most recently updated and applicable from 1 July 2020.

According to Lexis Digest Conveyancing Fees – July 2020, the following conveyancing fees have been set out as guidelines –

Value of property or bond

< = R100 000

Over R100 000 up to and including R500 000

Over R500 000 up to and including R1 000 000

Over R1 000 000 up to and including R5 000 000

Over R5 000 000

Recommended Guidelines

R5 200

R5 200 plus R800 per 50 000 or part thereof above that

R11 600 for the first R500 000 plus R1 600 per R100 000 or part thereof above that

R19 600 for the first R1 000 000 plus R1 600 per R200 000 or part thereof above that

R51 600 for the first R5 000 000 plus R2 000 per R500 000 or part thereof above that

The calculations in the table above are based on the following applicable legislation:

  1. Conveyancing: Conventional Deeds (Act 47/1937): Guideline of Fees
  2. Conveyancing: Sectional Titles (Act 95/1986): Guideline of Fees
  3. Interprovincial Apportionment Guidelines: Sectional Titles
  4. Interprovincial Apportionment Guidelines: Conventional Deeds
  5. Conveyancing fees and Apportionment of fees: Alienation of Land Act

In addition to the above table, a conveyancer can charge fees for every service they complete, from requesting cancellation figures, preparing relevant documentation, applying for rates clearance certificates, transfer duty and conducting deeds office searches. So, it is advisable to negotiate these fees upfront. If possible. Keep in mind that attorney’s fees are always subject to VAT being added.

What is transfer duty?

In the article Transfer duty in South Africa: Everything you need to know, Rhys Dyer, CEO of ooba Home Loans, explains that “transfer duty should not be confused with transfer costs, which include all the expenses associated with a property transfer”.

Transfer duty is paid to SARS and is therefore statutory. Meaning it cannot be negotiated.

According to the Transfer Duty Act 40 of 1949, transfer duty is owed over and above the purchase price and is based on the bank valuation amount, not the selling price of the property. This tax is paid by the buyer and the payments thereof handled by the appointed conveyancer on the buyers behalf. SARS will generally regard the purchase price of the property to be its value, unless of course SARS is of the opinion that the purchase price does not correspond with the true value of the property i.e. the value has been understated, in which case transfer duty will be paid on the true, market or fair value.

As of 1 March 2020 to 28 February 2021, transfer duty rates are as follows –

Value of property (Rands)

0 – 1000 000

1 000 001 — 1 375 000

1 375 001 – 1 925 000

1 925 001 – 2 475 000

2 475 001 – 11 000 000

11 000 001 and above

Rate

No transfer duty

3% of the value above R1 000 000

R11 250 + 6% of the value above R1 375 000

R44 250 + 8% of the value above R1 925 000

R88 250 + 11% of the value above R2 475 000

R1 026 000 + 13% of the value above R11 000 000

Bond registration costs

In the article Here’s what you need to know about bond and transfer fees, simply put – once a bond has been granted and the buyer has accepted it, he/she will pay fees to register the bond and to transfer the property into his/her name, a process which is handled by the conveyancer (whose fees cover the bond registration over the title deeds).

Does VAT apply?

At a high level (and by law), a transaction cannot be subject to both VAT and transfer duty and in a property transaction, the payment of VAT always takes precedence over that of transfer duty (especially where the seller is a VAT vendor). A well-known example is when purchasing a property from a developer and the purchase price excludes transfer duty. Here, buyers pay VAT instead. This amount is however often included in the purchase price. We will deal more fully with VAT issues relating to property transactions in a later article. Watch this space!

It is safe to say that despite the additional expenses faced by a buyer, conveyancers perform a vital role when purchasing a property. A buyer may not have the choice about who they appoint, but that doesn’t mean conveyancers don’t earn their dues in spades. And the murky, shark infested waters of property buying cannot be navigated without a worthy conveyancing captain. Cape in tow (of course).

Article sourced from Benaters.

See also:

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)
Share


Property Law articles on GoLegal