Important Property Terms: Value, Price, Bonds, Transfer Duties
Let’s get a little more technical about some of the terms associated with property. It is always good to understand some of the fundamental terminology used when speaking to people. Obviously these terms listed here are not all the terms that are associated with investment property, but it will give you a good head start.
Property value
The market value of the property. The market value of the property is not necessarily the purchase price. There are formally trained property valuators who will peg the market value for property. The banking institutions also employ valuators to determine the market value of a property. There are also replacement values for property. This is the value normally used by insurance companies in order to issue an assurance policy for the replacement value of the property. The replacement value is not the market value of the property, but rather the costs that would need to be incurred to replace the property if something happened such as a major fire. For the purposes of this book, we will always refer to the market value of the property.
Purchase price
The amount paid for a property. The purchase price paid for a property is not necessarily the market value of the property. Let’s take a closer look at this statement. If somebody urgently needs to sell a property, the seller might not ask a potential purchaser to pay true market related value for the property. The seller will most likely sell the property to the first cash offer at a greatly reduced amount. herefore the purchase price in this instance does not necessarily reflect market value.
Bond Amount
The amount of money the bank will lend you for the purchase of the property. Banks are willing to lend you money in order to purchase property. The naming convention of this type of loan is called a mortgage bond. These are normally 20 year or longer loans granted by the financial institution. Each bank has its own set of lending criteria.
Transfer duty
This is basically a form of sales tax payable on second hand property. The
transfer duty is calculated for each property sale as per a schedule adjusted by
the minister of finance. For a non natural person (a company or a trust) as it
is called, the current transfer duty is calculated at 8% of the purchase amount.
Thanks to Graham Van Zyl for permission to reproduce this text.
What you need to know before making an offer to purchase.