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WHAT IS AN INSTALMENT SALE?

There are generally two parties to an instalment sale, a seller and a buyer. A binding contract is entered into, in terms of which the seller sells the property to the buyer, who then takes possession. The buyer usually pays a small deposit, say 5%, and then makes monthly payments in respect of the balance for a defined period thereafter. The defined period technically has to exceed one year, but in practical terms is usually five to ten years or more. All terms are the subject of negotiation, but these obviously impact on the probability of a sale being concluded, and the speed at which this happens.

At the end of the defined period, a balloon payment may or may not be required. (More about this under INSTALMENT SALES STRUCTURES below.) It really is just like a hire-purchase agreement for your car!

The binding contract is recorded by the attorneys against the title deed in the deeds office, for the protection of both the buyer and the seller. The seller cannot then go and sell the property to someone else, raise additional bond finance, or renege on the instalment sale agreement. The buyer is also obligated to make the necessary payments, and risks having to hand the property back to the seller if they default on the payments. Having made a down payment, the buyer has every incentive to make the transaction work and to ensure that the property is properly taken care of. This is all in terms of the Alienation of Land Act (Act 68 of 1981) which governs instalment sales of residential properties in this country. Once the final payment has been made, the actual transfer of the property takes place.

No two instalment sales are exactly the same, so it is vitally important to use qualified and experienced attorneys. Whether you are a buyer or seller, Propsolve will guide you seamlessly through the process.

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An instalment sale is the sale
of a residential property, where...

- Payment for the property
is made in two or more
instalments to the seller
- Payments are made over a
period exceeding a year

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SELLERS - CONTACT US TO LIST YOUR PROPERTY
BUYERS - SEE PROPERTIES FOR SALE
FREQUENTLY ASKED QUESTIONS

INSTALMENT SALE PROCESS

  LISTING INTEREST VIEWING OFFER CONTRACT POSSESSION PAYMENTS TRANSFER
Seller
  • Provide info
  • Agree terms
  • Show property to suitable buyers
  • Sign acceptance of offer
  • Provide final info
  • Sign contract
  • Hand over possession
  • Receive surplus payments (if applicable) from buyer
  • Receive final payment
Purchaser
  • Select property
  • Provide info
  • View property
  • Sign offer
  • Provide final info
  • Sign contract
  • Pay deposit (typically around 5%)
  • Take possession
  • Make bond payments to bank
  • Make surplus payments (if applicable) to seller
  • Make final payments to bank and seller
  • Receive title deed once property transferred
8 Step process for selling property on instalment sale with Propsolve
10 Step process for buying property on instalment sale with Propsolve

INSTALMENT SALE OUTCOMES

A sells his property to B
using an instalment sale:

 

It can take as little as two weeks to find a buyer and sign an instalment sale agreement

An instalment sale agreement can remain in place for many years

 
  INITIAL SITUATION ONCE INSTALMENT SALE
AGREEMENT HAS BEEN SIGNED
ONCE FINAL INSTALMENT
HAS BEEN PAID

Title – who owns the property?

A owns the property - A's name is on the title deed

A's name remains on the title deed and the instalment sale is recorded against it - A and B's rights are protected

B now owns the property - B's name is on the title deed

Occupation – who lives in the property?

A occupies the property

B occupies the property

B occupies the property

Bond – in whose name is the bond?

A has the bond in their name

A still has the bond in their name, although they no longer make the payments

Not applicable (the bond has now been paid off)

Bond payments – who makes these?

A makes the payments

B makes the payments

Not applicable (the bond has now been paid off)

Additional payments, if applicable*?

Not applicable

B makes these payments to A

Not applicable

Operating costs** – who pays these?

A pays all such costs

B pays all such costs

B pays all such costs

Maintenance – who is responsible?

A is responsible

B is responsible

B is responsible

* This depends on the agreed sales price and other terms; it will normally be applicable where,
A has some equity in the property, i.e. the house is worth more than the outstanding bond
** E.g. rates, levies, maintenance, and insurance

INSTALMENT SALE STRUCTURES

The terms within an instalment sale agreement are extremely flexible and can vary to suit the needs of both the buyer and seller. However, the typical instalment sale arrangements are:

1. Full instalment - A small deposit is paid upfront and the remainder of the purchase price is paid off over the term (time) of the agreement at an agreed interest rate. The agreement is often structured to last for the period of the remaining bond of the seller if he/she has one.

2. Reduced instalment and balloon payment - A small deposit is paid upfront. Monthly instalments are then paid just as they would be with a normal mortgage, with a principal and interest component, and assuming a more conventional term, say 20 years. However, at a fixed point in time, say 5 years from the date of the sale, the full outstanding balance (the principal outstanding at that point) then becomes due as a lump sum, or balloon payment.
INSTALMENT SALE COSTS
Core financial elements of an instalment sale include: (contact us for details in your specific case)
  • The deposit (payable by the buyer),
  • Propsolve’s fee (payable by the seller – out of the proceeds of the deposit),
  • The monthly instalment payments (payable by the buyer),
  • The monthly bond payments (payable by the seller – out of the proceeds of the monthly instalments),
  • The balloon payment at the end of the term (payable by the buyer), and finally
  • The bond settlement figure at the end of the term (payable by the seller – out of the proceeds of the balloon payment).  
 
Other seller costs:
 
TRANSACTION RELATED
  • Costs associated with obtaining beetle, electrical, plumbing, and other compliance certificates (where applicable)
  • Application fee for registration as a credit provider with the National Credit Regulator (the actual process is managed on your behalf)


Other buyer costs:
 
TRANSACTION RELATED
  • The instalment sale contract fee payable to the attorneys
  • Transfer duty to SARS within 6 months, and transfer costs at the end of the instalment period when the property is fully paid off
ONGOING OPERATING COSTS (from occupation date onwards)
  • Rates + levies/home owner association fees (if applicable)
  • Maintenance
  • Property insurance 

The table below gives a rough indication of the monthly instalments a buyer can expect to pay assuming a 5% deposit, an interest rate of 9.25%, and a 20 year instalment term. 
MONTHLY INSTALMENT (R) HOUSE PRICE (R) DEPOSIT (R)

4,317
6,476
8,634
12,951
17,268
 

500,000
750,000
1,000,000
1,500,000
2,000,000

25,000
37,500
50,000
75,000
100,000

Please note that the above figures are purely illustrative and the
exact payments depend on the final terms agreed between the seller and buyer.

For a more detailed explanation of instalment sales please read our
Frequently Asked Questions >>
 

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