QUESTION: I am a small investor and have, over the years, invested in real estate. I have found it to be a safe and solid way to increase my financial base. As often as I have sold and bought into real estate, I cannot seem to calculate accurately the final cost if I am buying, or what will be the final proceeds that I should get (in hand) if I am selling.

What is the accepted percentage that I should add to a selling price if I am purchasing, and what percentage should I subtract from my selling price once an agreement is made, all fees and taxes included? Most vendors and purchasers are at the mercy of their attorney's statement of accounts. What are the accepted industry practices and variables? Thanks in advance.

- Ben

PFA: The costs incurred when buying or selling real estate can be substantial. They are generally expressed as a fixed percentage of the value of the property; a few vary. The charges incurred are payable to the Government and the professionals who play a role in the transaction.

The costs incurred by the seller may be almost three times as much as those borne by the buyer. The highest cost borne by the seller is the sales commission of five per cent of the price of the property. It is paid to the real-estate dealer.

Of course, not all real-estate transactions attract this charge because it is possible to sell a property without using the services of a realtor, though that may be the more difficult course to take in some circumstances.

The next highest charge is transfer tax, which is 4.0 per cent of the value of the property. It is borne solely by the seller and is paid to the Government. This figure has been reduced in steps from 7.5 per cent, which applied in the period before May 1, 2008.

Stamp duty, also paid to the Government, is 3.0 per cent of the value of the property, but the cost is borne equally by the buyer and seller, so each pays 1.5 per cent. This cost was also reduced recently.

Attorneys' fees vary. They tend to range from 2.5 per cent to 3.0 per cent of the value of the property, but there are cases where this may be as low as 1.5 per cent.

Other fees payable include registration fee, also called recording fee, which is paid at the offices of the National Land Agency. This is 0.5 per cent and is split equally between buyer and seller so each pays 0.25 per cent. It goes to the coffers of the Government.

The sales agreement is generally drafted by an attorney-at-law. The cost is divided equally between the seller and the buyer. It is usually negotiable but is often 0.4 per cent of the value of the property so each party pays 0.2 per cent.

General consumption tax of 16.5 per cent is payable on the cost of preparing the sales agreement, on the sales commission, and on the attorney's fees, thereby adding 0.03 per cent, 0.825 per cent and up to 0.5 per cent, respectively, to the cost of the transaction.

The seller's costs in a real-estate transaction could be as high as 15.5 per cent of the value of the transaction. This may be less if negotiable rates, such as the attorney's fees, including the cost of the sales agreement, are at the lower levels of those mentioned above.

The cost to the purchaser is about 5.5 per cent of the value of the transaction. As mentioned above, the buyer is responsible for a half of the cost of the stamp duty, registration, and agreement for sale but is responsible for his attorney's fees, which could be as high as 3.0 per cent.

Mortgage-related charges

The buyer who requires a mortgage from a building society to help fund the purchase has additional mortgage-related charges, which could amount to about six per cent of the value of the loan. Add to that the deposit which is usually 15 per cent of the purchase price.

Here is a rule of thumb that you may apply when you are buying or selling: add 5.0 per cent when buying property for cash, but if mortgage financing is being used, increase that cost by 6.0 per cent of the value of the loan, and deduct 15.5 per cent from gross sales proceeds if selling.

Oran A. Hall is principal author of 'The Handbook of Personal Financial Planning'. Email: finviser.jm @gmail.com.