When selling or buying property, there are various transactions involved which attract fees and taxes. It’s interesting how most of the buyers turn a blind eye when venturing into the real estate industry. This then leads them to experiencing total blackout on the transaction fees included when buying property. Due diligence is a crucial factor that any buyer should not ignore so as to make informed decisions.
In Kenya, beyond the price of the house, a buyer has more costs to pay for. These are known as transaction costs. A transaction fee incurs during the course of acquiring the property. While some transaction costs are fixed, other costs are valuable based on:location of the property, the type of real estate, the documents you need, commission fees and fees charged by the professionals you choose to work with.
By estimation, it costs around 4.5% to 6.8% of the property selling price to cover for the whole transaction cost. It might cost even more if you are not educated on the transaction costs involved, as some players in the real estate take advantage of the naive buyers. The following will not only educate you on these costs but also help you create a budget that covers the whole process.
- Lawyer fees
In real estate, for any transaction to be complete a lawyer must be present. Lawyers in Kenya are governed by the Advocates Remuneration Order which controls the charging fees on any client. This law is designed to voice complaints if one is aggrieved by fees charged by a lawyer so you don’t have to feel helpless when dealing with alwayer.
Once a lawyer has done all his duties necessary for you to own a land, you will be then required to pay him. In Kenya, a buyer is advisable to budget for 1-2% of the purchase price for the property as the legal fees. The Advocates Remuneration Act states that the minimum amount payable to the lawyer is Ksh 35,000.
Note that the lawyer is supposed to conduct due diligence on the land, before and during the transaction. Also, after getting the approval from the commissioners office ,the buyer will be required to incur for the legal fees required for the lawyer preparing transfer papers to be executed by the seller and buyer.
- Real estate agent
Working with a real estate agent like property commercial kenya comes with a lot of advantages. However, you will have to set aside fees for the services provided when looking for the property and for the property negotiations. While other real estate agencies may charge totally unreasonable fees(high), commercial property kenya charges are reasonable,filled with integrity and honesty.
For a seller, the real estate agency will prepare and market your property in different social media platforms to get more customers. therefore, you will be then needed to pay for the services
Note that agency fees are not fixed since they are based on the value of the property and the services provided.
- Mortgage fees
Today, most buyers finance their property using credit. This means they are required to pay some translation fees to the lenders. When returning the borrowed capital, the buyers gives back with interest and additional costs that may arise such as insurance and prepayments penalties
It is important for any buyer to note that the interest rate can be lowered if the personal contribution of the buyer is high. It is also advisable for a buyer to contact a trustworthy mortgage broker to negotiate with financial institutions in place of him or her
Lenders also charge to verify the title of a property.
- Search fees
To make sure a property is registered under the real owner and dig through the previous owners of the property ,a property search must be carried out. The search includes the previous transactions and legal fees linked with the property in question. In Kenya, a land search through the eCitizen platform costs Ksh 500.
The buyer will also be required to book a meeting with assistant county commissioners and village elders from the location of the property. This group is referred to as the Land Control Board (LCB). These kinds of meetings happen once per month and cost Ksh 1000.
However, a buyer may decide to take an alternative and book a Special Land Control Bond which is made up of the Assistant County Commissioner and the two transacting parties. This meeting happens regularly unlike the LCB and costs Ksh 5000.
This is called the stump duty,levied from all transactions. After the sale completes, your lawyer will be required to present the sale agreement to the land office for stamping of duty. The amount levied at this stage is based on the location and the price of the property. 4% of the purchase price is levied for property in urban areas while 2% of the purchase price is levied for property in the rural area.
There is also capital gains tax that should be accounted for. This is usually charged at 5% of the net gain value . one can either pay in installments, that is before the accounting period or and the end. This payment is strictly paid through iTax.
- Utility costs
After owning the property of your interest, you will be required to pay for utilities such as water, electricity and garbage collection for those in urban areas. While there are common utilities that every buyer is aware of, Internet connection, security and residential association fees are some of the utilities that you must be aware of.
Considering the above costs is your ticket to making informed decisions when buying land in Kenya. For more information, read our articles that have full insights on property and the real estate industry.