Selling your home?
But how much will you get out?
So often sellers are so excited at the idea of what they plan to do after they sell that they do not pause and consider what will they get out of their sale and will it be enough, for what they planned.
But should the estate agent not guide them and assist them to do this?
Of course, they should but sometimes it may happen that the agent is more excited than the seller at getting the listing and for various reasons like lack of proper training, lack of experience, and or a number of other possible reasons, neglects to do a net sheet with the seller.
But what is a net sheet?
A net sheet is an estimation of the likely net proceeds you will likely realize from the sale.
Since nobody really can foresee every eventuality nor the exact amount of a future expense; there is always a degree of estimation, although increased accuracy does come with knowledge and experience.
This post is not a comprehensive list, although it will cover the most common parts of the calculation:
First of all, let’s start with the likely selling price, the offer amount, or the sale price (this will depend on the stage at which the net sheet exercise is done. In my experience, it is better to do this at the beginning of the sale process because it allows the seller to make more informed decisions and also so that the seller can determine their bottom line.
Settlement of the mortgage bond
The first deduction from a sale is the bond settlement amount. This is the amount required by the bondholder to consent to the cancellation of the mortgage bond over the property. Due to the nature of the process, the amount claimed initially, is often slightly more than what is required. The bank will usually refund any overpayment soon after the bond cancellation.
90 Day Notice
The bank is entitled to 90 days notice before the bond is canceled. Your estate agent would have advised you at the outset to give notice to your bank of your intention to sell your home, which begins the 90 day period, some of which will be take off as the conveyancing process takes its course. But if the bank has not had a full 90 day’s notice, it will recover the pro rata interest that it would have become due, which is also deducted as part of the bond cancellation process.
Bond Cancellation Fee
As the seller, you will be responsible to cancel the bond/s over the property being sold. This amount can vary and is also affected by the number of mortgage bonds that need to be canceled.
It is important to remember that even if your bond is fully paid up, that you will still need to cancel the bond over the property.
According to Alan Els, a director at the leading Port Elizabeth conveyancing firm, Greyvensteins Inc, a bond cancellation at time of writing this post would be about R3,160 and would increase by R281 with every further bond.
Lost Deed Application
So often a property is bought cash or the bond is previously canceled and the title deed was delivered to the owner, who could have misplaced it or maybe it was destroyed. In this case, the owner will need to apply for a replacement deed. This cost will also be deducted from the seller’s proceeds of the sale.
Alan advised that at present a lost deed application would cost in about R2,630.
Estate Agent’s Commission
This is a negotiated fee which is mostly a percentage of the selling price along with Value Added Tax (VAT) at 14% (unless the agency does not have a very high annual commission earnings).
Which brings us to an example of a real net sheet.
Mr A sells his home for R4,000,000 through Bold Realty, on which deal the negotiated commission was 2% plus VAT. There was a R1,000,000 mortgage bond over the property with a balance of R200,000. The sale was done just days after the notice was given. The purchaser is buying cash so the transaction is likely going to register within 60 days.
Purchase Price: R4,000,000
VAT on Commission: R11,200
Bond cancellation amount R204,000
90 Day “penalty”: R1,500
Bond Cancellation fee: R3,160
Estimate net proceeds: R3,700,140
This net sheet allowed Mr A to make an informed decision on what money would be available from the sale. It also assisted Mr A’s tax advisor to advise him on possible tax implications flowing from the sale like Capital Gains Tax (CGT).
It is important to realize that the amounts quoted above are hypothetical except the amounts mentioned by Alan. However, these costs are based on a standard transaction and do change from time to time. It is therefore advisable to get contemporaneous advice from your property practitioner, your conveyancer, and your tax advisor.