Potential costs when selling the family home – Part 2

Selling the family home can often be a
daunting and stressful task,
especially when you are not familiar
with the process and costs involved.

This article will focus on the costs incurred by the seller
and  lay them out in a way
that is simple and easy to understand.

 

 

Most additional costs involved in the sale of a home fall on the buyer of the property.  However, it is important for a seller to factor in the following three costs into his/her  financial planning

Estate Agency Fees

This is most likely going to be the highest cost to account for when selling your home.  Therefore, it is crucial that you find an agency and Estate Agent that you feel comfortable with and has your best interest at heart.

It is very important to deal with an agency that has a strong client base, advertising and marketing channels, good track record, market knowledge, and a strong team and support system. As a seller, you need to expect your agent to be able to explain the full process from valuing of your home, marketing, receiving an offer, the negotiation process, and legal procedure in a manner that is simple and clear to understand.

While certain agencies work differently, most Estate agencies in South Africa charge a fee as a percentage of the selling price. The fee can vary, but is generally in the region of 5% + VAT. Therefore, if your home was sold for a price of R1 500 000, the fees due to the selling agency would be R75 000 + VAT (meaning the total would be R86 250). – This would leave the seller with R1 413 750 in their pocket after fees.

Compliance Certificates and remedial work

To sell your home, you need to ensure that it is fully compliant in terms of certain aspects. It is the duty of the seller to ensure that the home is compliant.  It is also the seller’s responsibility to pay for the compliance certificates as well as work required (if any) to make the home complaint.

There are five different certificates, some of whmay not be necessary (dependent on the property):

• Electrical certificate
  Valid for 2 years from date of issue provided no changes are made.
• Water and Plumbing certificate
  Valid from transfer to transfer.
• Electric fence certificate
  Valid for 2 years from date of issue provided no changes are made.
  This is only required if the property has an electric fence.
• Beetle certificate
  Valid for 3 months from date of issue.
  Only required if the property has wood (floors, windows, doors etc.) and not required for sectional title properties.
• Gas certificate
  Valid for 6 months from date of issue.
  Only required for properties with gas lines installed.

Each certificate costs in the region of R500. There are many service providers who offer inspection packages for all the required certificates and may offer discounts should you select to use them for all of them. It is important to remember that any remedial work is quoted in addition to the cost of the certificates and is dependent on the work required.

Capital Gains Tax

This is not necessarily a “cost” that is incurred when selling.  However, it is something that is very important to be aware of and factor into your financial planning.

Capital Gains Tax can vary.  It is important to consult with an accountant or tax advisor on what to expect. Capital Gains will differ greatly depending on how the property is owned (as a natural person, in a company, or in a Trust) and what the use of the property was for (personal residence or investment property).

If a property is owned in your own name, and has been used as a primary residence, there is a R2 000 000 Capital Gain exemption. This means that you will only be taxed on any gain made on the property that is over and above R2 000 000 more than what you purchased it for. For example, if you purchased the home for R5 000 000 six years ago and then sold today for R7 500 000 you would only be taxed on a gain of R500 000 (R2 500 000 total gain – R2 000 000 tax exemption = R500 000). By owning a property as an individual, 40% of the gain is added towards your annual income and taxed accordingly in-line with the SARS income tax tables. This would mean that R200 000 (40% of R500 000) would be added to your income and taxed as per normal income earned.

Properties owned in your own name, but not used as a primary residence (i.e., for investment purposes) do not benefit from the R2 000 000 exemption and any gain made on the property will be taxed.

It is important to note that any renovation improvement costs as well as estate agent fees are tax deductible and can be subtracted from the selling price to reduce your tax liability.

While there are benefits to each type of entity (natural person, Company, Trust) it generally the most economical to purchase family homes in your personal capacity. However, as previously mentioned, consulting with a tax professional is advised should you require any further advise on this.

 

Article by Nick Gaertner
Knight Frank
Tel: 021 671 9120
Email:  nick@res.za.knightfrank.com
Website: https://www.kfproperty.co.za/

 

Image, courtesy of Freepik
<a href=’https://www.freepik.com/photos/business’>Business photo created by xb100 – www.freepik.com</a>

 

 

 

Relevant articles:

Why selling the family home does not have to be daunting – Part 1

Life rights – the pros and cons

Free wills for YEI members