When Angile [real name withheld] recently bought her first property, she encountered a number of pitfalls that very few property buyers are prepared for.
The estate agent put her under significant pressure to submit an offer, saying there were many other potential buyers waiting to submit offers on the property. Angile liked the particular area, so even though she had visited the property only once, and had only verbal information provided by the estate agent and a one page flyer with a picture and a few sketchy details about the property, Angile signed up for the biggest debt she had ever incurred in her life – a debt that will most likely take her 20 years to repay.
But this was just the beginning… Although Angile was able to put down a reasonable deposit, she still struggled to raise a home loan. So, when the bank finally approved her home loan, she gladly accepted the home loan offer with an interest rate 2% higher than the prime lending rate. Little did Angile know that this extra 2% on her interest rate means that she would pay almost 32% more for the property she had just bought.
Would Angile accepted a home loan that resulted in her overpaying 32% for a property if she had access to a comparative market analysis (CMA) and time to do proper research? Even a novice would not have done so, but Angile was so battered and worn down by the purchase process and home loan application, that she put in an offer and accepted the home loan offered by the bank, without understanding the real consequences.
But Angile’s struggle was not yet over… As most buyers do, Angile assumed that the registration of the property on her name would be a straight-forward process. In reality, she could not comprehend why she had to visit two sets of attorneys to sign documents she did not understand and, to her great dismay, had to pay each attorney a hefty sum of money before they would register the property and the bond.
As the date of transfer drew near, Angile sold some furniture, packed up the rest and made arrangements to move it. After numerous phone calls the week before the removal truck was due to arrive, she learnt that the transfer would most likely be delayed, as the municipality was behind with the issuing of rates clearance certificates. Now homeless, with all her belongings packed away in boxes, Angile had no way of knowing when she would be able to move into her new home.
Interestingly, Angile is a financial consultant with two degrees behind her name. One would have thought she would understand the process of buying a property, applying for a home loan and registering ownership better than most.
Unfortunately, the reality is that most property buyers do not understand the process, because they do more research when buying a mobile phone or a car than when buying a property, which will most likely be their biggest investment and the biggest debt they will incur in their lifetime.
Do your research
The one page information marketing brochure provided by an estate agent is not comprehensive research. Buyers should insist on a comparative market analysis (CMA) and should also do their own research on the Internet to ensure the property is not overpriced.
Before signing an Offer to Purchase, buyers should first consult with their attorneys. The attorneys should at least to go through the sale agreement before it is signed. We have seen countless sale agreements with open or blank spaces, no provision for vacant occupation on transfer or a specific date of occupation. This could result in buyers ending up with tenants with a long-term lease occupying their new home.
Buyers should also ask their attorney to scrutinize the title deeds for onerous conditions and investigate the diagram of the property prepared by the Surveyor General’s office as these documents may contain servitudes or rights in favour of third parties over the property. The attorneys should also verify on the sectional title register whether there is a right to develop further and the status quo of the exclusive use areas. Often mistakes are made regarding how the exclusive use areas are owned, as some exclusive use areas are formally demarcated and a title deed issued for such right while other exclusive use areas are allocated according to the rules of the body corporate, which may have changed.
Investigate potential liabilities
Buyers often assume that when the local municipality issues a rates clearance certificate it means that all rates and taxes are paid. In reality, however, the municipality may have overlooked outstanding rates and taxes bills that are older than two years. As outstanding rates and taxes does not prescribe, but remain a debt to the property (not the previous property owner), new property owners may well be held responsible for old rates and taxes that precedes their ownership.
When investing in a sectional title scheme, information about the financial situation of the body corporate must be obtained before the sale agreement is signed. In Angile’s case, for example, the estate agent verbally confirmed that the financials affairs of the body corporate are sound. However, despite various requests to obtain a copy of the financials, Angile had still not received these four months after signature of the sale agreement and a month after date of transfer. Little did Angile know that trustees of a body corporate can decide to raise additional or special levies. Within one month after she became the owner of her new apartment, she was faced with a special levy to repair and replace the outside windows of the entire complex.
Had Angile known better and had she been under less pressure, she would have made her offer subject to the condition that a reputable company perform a house inspection. Although she was in a hurry to submit her offer, she could have made the offer subject to the condition that she had the opportunity to obtain a house inspection report within 7 days after signature of the agreement, and that she is satisfied with the outcome of the report.
In one recent case, a buyer was able to renegotiate and reduce the purchase price by R50,000 after the house inspection report revealed some serious defects in the property. The R4,000 spent to obtain the house inspection report was one of the better investments the buyer had made.
Get the right finance
Remember that a bank will evaluate your credit profile and debt exposure when evaluating the risk of granting a home loan. The bigger the risk, the higher the interest rate. Before applying for a home loan, obtain a copy of your credit profile, and first repair mistakes and negative information such as late or non- payments. A 1% higher interest rate can increase your repayments by more than 15% and a 2% higher interest rate will cost you up to 32%.
By Meyer De Waal