Note: This article was originally published on Zonotho, a financial education start-up, in August 2020
Author’s Note: This article is written considering purchasing an apartment in a complex (i.e. sectional title) in South Africa. Many of these items also apply to a house, but some do not.
You’ve found your dream apartment, the price seems right, and all you need to do is make an offer and hope its accepted. For many people, this will be the single largest transaction of their lives. So it can be an absolute disaster if you later discover the place isn’t what you signed up for.
Here’s a handy list of things you should check before you splash the cash.
1. Get a list of recent sales in the area
The price of a property depends on many things. Two of the most influential are the location of the property and the size in square meters. You can ask the agent for a list of recent sales in the area. If the apartment is significantly more expensive than similar apartments in the same area, you could be getting ripped off. If the apartment is significantly cheaper, the seller could be desperate or there could be something wrong with the place. Always ask why the owner is selling.
2. Get a mortgage pre-approved
Some banks can approve your mortgage before you purchase a property. This will be attractive to sellers and may help you negotiate a better price. If they sell to a person with a pre-approved mortgage, then there is a better chance of the sale going through. Whereas without a pre-approval, the mortgage might not be approved, and the sale could fall through.
3. Inspect the property for defects
Inspect the apartment closely before you sign any documents. Check for leaks, mould, cracks and bubbles in the walls and ceiling, broken drawers or cupboards, or any plumbing or electrical issues. Ask if there are any structural defects in the building. Check how many neighbours you have on either side and whether there is a concrete slab above you. If the issues are serious it will cost you a lot of money to fix or could even be a deal breaker.
4. Ask if there are designated plumbers and electricians for the building
You can get their contact details and ask them what kinds of issues they’ve had in the complex. Plumbers and electricians should know better than anyone what the major issues in the building are and which parts of the building have these issues. If there are serious and frequent issues, this is a warning sign.
5. Get the recent financial statements
All complexes publish their financial statements every year. These statements tell you how much levies were collected and what it was spent on. If they spent less than they collected, there will be a surplus and they will add it to their reserves. This is good news and means the complex has money for a rainy day. If they spent more than they collected, there will be a deficit. If there are too many deficits, the complex will run into debt which is a bad sign. The owners will eventually have to repay this debt so if it’s too high it could be a deal breaker.
6. Check for any special levies
Ask the agent and the body corporate if there have been any “special” levies in recent years. Special levies are additional levies that owners had to pay above their regular levies. If there have been, ask why. Special levies can be for a good reason, such as upgrading security. They can also be for bad reasons, such as the complex has structural defects or has been poorly managed and went into debt. Bad special levies are a warning sign.
7. Tally up all the costs
Make sure you have enough cash on hand to pay all the up-front costs, because there are many. You can read my article on the true costs of purchasing a property over here.