There are several different ways to buy into the property market that involve different types of ownership, each with its own rights and obligations for you, the owner. Over the next few weeks, as part of our series on how to manage your money, we will tell you about the different types of property ownership, including freehold title, sectional title and shareblock. This week, we report on how to buy a freehold property.
The most common type of property ownership is individual freehold title. This means you fully own the house or property you buy.
You, as the owner, may do anything you want with the property, including renovating it, letting it out or painting it whatever colour you like, provided you do not contravene any municipal or homeowner association regulations. For example, you cannot use the property as business premises if it has been zoned for residential use only.
When you buy a freehold property, the plot of land is called an erf. An erf has boundaries that demarcate the land or property you own. Each erf has a number, and you should make sure that the sale agreement you sign has the correct erf number.
As the owner of a freehold property, you have to pay rates (a tax charged by the local municipality) to cover the cost of providing services, and you will also have to pay for water, sewerage and refuse removal. Your electricity bill will be included in your municipal account, unless you buy pre-paid electricity.
When you buy a freehold property, you are given the title deed for that property. All title deeds are registered at the Deeds Office, which is a government office in each of the nine provinces that records ownership and other rights relating to immovable property.
If you have taken out a home loan, the bank will retain your title deed as security for the loan until you have paid off the loan, when the title deed will be hand over to you.
How to buy a home
Once you have identified a property that you want to buy, you should contact the estate agent who is acting on behalf of the seller, or contact the seller if he or she is selling privately, in order to present an offer in writing to purchase the property.
The offer to purchase is the most important document in a property transaction, because, once it has been signed by both the buyer and the seller, it becomes a binding contract that sets out the terms of the sale. From that point on, it is known as the deed of sale.
If you sign an offer to purchase and then walk away from the deal after the seller has accepted your offer and signed the deed of sale, the seller has the right to sue you for any damages he or she suffers as a result of your cancelling the deal. These damages could include the estate agent's commission.
You may have to resell the property if you cannot cancel the deal.
So you should make an offer to purchase only if you are absolutely sure that you want and are able to buy the property.
Seller's obligations
The seller must provide you, the buyer, with an electrical compliance certificate. This certificate is paid for by the seller, is issued by a registered contractor and verifies that the property's electrical installations are in order.
If the contractor finds that the electrical installations are faulty, the seller has to have the faults repaired at his or her expense before you take possession of the property.
You can also request an entomologist (beetle) certificate, which states that the property is free of certain pests. Buyers commonly ask for this certificate to verify that there are no wood-boring beetles in the house.
If wood-borer beetles are found in the house, the seller has to pay for the cost of exterminating them if this is a condition of the sale.
Although an entomologist certificate is sometimes required by the banks where older dwellings are to be bonded or where there is a suspicion of pest infestation, it is not a legal requirement as is an electrical compliance certificate.
Cooling-off period
You are entitled to a cooling-off period if the property you are buying is selling for R250 000 or less. This is a five-day period that excludes Saturdays, Sundays and public holidays.
During this period, you have the right to change your mind and withdraw your signed offer to purchase without incurring any penalties.
It is important to note that the cooling-off period starts at midnight of the day you, the buyer, sign the offer to purchase, and not the day on which the offer is accepted and signed by the seller. You can exercise your right to cancel an offer within a cooling-off period up to twice on the same property.
AMEND THE OFFER TO PURCHASE TO PROTECT YOUR INTERESTS
Estate agents have standard offer-to-purchase agreements that are generally drafted by the agents or their legal advisers, but you do not have to accept the offer to purchase as it stands.
You, as a buyer, have the right to amend or cross out any clauses that you believe are not in your interest. Similarly, the seller has the right to amend clauses that he or she regards as unfair. If any clauses are amended, the buyer, the seller and the estate agent must initial the changes to acknowledge that they are aware of the changes and have agreed to them.
You should read the fine print in the offer to purchase and query anything you do not understand with the estate agent before you sign the offer. You also have the right to take an unsigned copy of the offer to purchase to your lawyer or a conveyancer (a lawyer who specialises in the law of immovable property) to obtain expert legal opinion before you sign it.
Subject to clauses
If you need to take out a loan to buy a property, you must make sure that the offer to purchase is subject to your being granted such a loan. If you omit this condition from the offer, you will be bound to buy the property regardless of whether or not you obtain the loan.
It is common practice to set a time period on this clause. It can vary from seven to 60 days.
The purpose of the time period is to ensure that if you do not succeed in obtaining a loan within the period provided for, you are not bound to your offer, and, once the time period has expired, the seller can consider offers from buyers who either do not need a loan or already have one.
Similarly, if you are relying on the proceeds from the sale of a property to buy another one, you should make the offer to purchase subject to the sale of the property you already own. Once again, the wording of the clause must be extremely clear so that you are protected if the sale of your existing property falls through.
Again, a time period is normally attached to such a clause. Usually, you are allowed six to eight weeks to sell your existing property.
Fixtures and fittings
Most offer-to-purchase agreements state that the property is sold with its fixtures and fittings. Fixtures refer to items that are permanently attached to the property and include built-in cupboards, light-fittings and ceiling fans.
However, sellers and buyers may disagree on what is a fixture and what is not, so if there is a specific fixture you want included in the sale, you should identify it in the offer to purchase. Similarly, the seller may identify an item that he or she would like to remove from the property.
Occupation and possession
The dates of occupation and possession are usually included in a clause in the offer to purchase. The date of occupation can differ from the date of transfer, or possession, which is the date on which the property is registered in your name.
From the date of possession, you are responsible for the rates that may be levied by the local authority, but if you take occupation before transfer, you could be liable for rates from the date of occupation.
Ideally, the date of possession and the date of occupation should be the same, but they may not be if, for example, the property has been rented out and the lease will expire after the date of possession.
On the other hand, the property may be vacant, and you may be in a hurry to move in. The seller may agree to a date of occupation that is earlier than the date of possession.
You will be charged occupational rent from the date on which you move into the property until the date on which it is transferred into your name. Similarly, if the seller fails to move out of the property by the date of possession, you are within your rights to charge him or her occupational rent.
The amount of occupational rent that will be charged each month must be spelled out in the offer to purchase to avoid disputes later on.
Usually, occupational rent is set at about 10 percent of the property's purchase price divided by 12.
If you want the seller to repair any damages or finish any renovations to the property before you take possession of the property, you should make this a condition of the offer to purchase.
However, the seller may use inferior products, so it may be wiser to negotiate a lower selling price and undertake the repairs or renovations yourself.
Voetstoots clause
Offer-to-purchase agreements include a voetstoots clause, which means you agree to buy the property "as is", with all its latent and patent defects. You will not be able to claim damages from the seller if you discover these defects after you have bought the property.
Although sellers are obliged to tell you about any defects of which he or she is aware, it can be difficult to prove that they deliberately misled you. For this reason, you may, before you sign the offer to purchase, ask a suitably qualified professional, such as a building engineer, to inspect the property and give you a full report. You will have to do this at your own cost.
Contrary to what some people believe, if you take out a home loan, the bank does not send a building inspector to inspect the quality of the building.
The bank will send a property valuer, who verifies that the value of the property provides sufficient security against the loan for which you are applying.
The valuer does not necessarily inspect the structural condition of the buildings on the property, and the bank cannot be held liable for any structural defects.
USEFUL TIP
In terms of the National Credit Act, you are no longer allowed to obtain a pre-approved home loan from a bank.
But if you contact a mortgage originator or a bank's home loan division and provide it with details of your financial situation (your income and all your expenses), the originator or bank will work out what you can afford and will be able to give you an estimate of the loan for which you will qualify.
The estimate is not a guarantee that you will obtain a loan for that amount, but it can help you identify the price range you can afford when you buy a property.
WARNINGS
- This series of articles is written and researched by Personal Finance independently of any advertiser, product provider or financial services provider.
- Personal Finance does not endorse any products or services in the broader financial services industry.
- Personal Finance does point out the advantages and disadvantages of different products. It has done so in the case of numerous property investment opportunities, particularly property syndications, which have repeatedly proved to be very high risk. Previously published articles on property syndications may be found on this website.
- Before you invest in any scheme or product, you must take due care to understand all the risks and costs involved. This should include all the commissions that will be received by the person who sells the product.