Surprise...they’re called closing costs.
Even those who like surprises don’t want to be surprised by unexpected costs on closing day. The best way to avoid these surprises is to be educated about the process - I’m here to help you. Buyers pay the Seller’s purchase price as agreed on – but on top of that there are these extras to be aware of:
- Legal fees
- Land transfer fees
- Closing adjustments (as required if necessary)
*This is a guideline only, for broad information. Please ensure you consult your lawyer to be clear on the details specific to your deal.
Lawyers either offer a flat fee, or charge an hourly rate “plus” expenses. Even lawyers offering a flat fee will want specific details about your deal so their fee can be set appropriately. And be sure to clarify exactly what’s included in that flat fee - for example, does it include title insurance or any legal services that may be required for completing the mortgage component of the deal? It’s also prudent to inquire how the fee might be subsequently adjusted if unexpected or unusual problems arise, and what those “extras” might cost you. (**see ‘Disbursements’ below)
Transfer Fees & Taxes
Different regions have different land transfer fees. Provincial retail sales tax may have to be paid on the sale of personal property or items (i.e. lawn tractors or snow blowers) that are made part of the deal. And while H.S.T. is not payable on resale homes, it does apply to the sale of new construction, subject to a rebate in certain cases.
Disbursements are any out-of-pocket expenses incurred by your lawyer during the course of the closing process. Some lawyers have averaged these costs out, and roll them into the fixed rate. Again, your lawyer should be able to give you a reasonable estimate of the disbursements, plus any H.S.T. costs that may be due on particular expenses. Here are some of the more commonly incurred expenses:
- Tax certificates indicating whether there are realty taxes outstanding
- Utility certificates indicating any hydro, gas or water charges outstanding
- Execution certificates issued by the local Sheriff or land Registrar concerning any outstanding judgement on file against the seller, purchaser, or previous owners
- Title Insurance
- Estoppels or Status certificate in the case of a condominium; it gives relevant information about the status of the unit, including any outstanding arrears affecting it, and the financial strength of the management company running the condo corporation.
- Title of lien search to determine whether there are any outstanding liens against the home or any personal property being acquired.
- Registration cost; either registering the deed or a mortgage
In the case of new construction there may also be many additional disbursements such as enrollment of the home into a provincial warranty program, costs of hydro and water “hook-up”, etc.
Closing adjustments allocate various charges between the Buyer ands seller right up to the closing date. These adjustments are expenses relating to the property that have been paid in advance for a period covering the closing. These adjustments are calculated based on a per diem basis and can include:
- Utilities paid on a flat –rate basis such as hydro, water, gas (metered utilities are not normally adjusted because the buyers account will automatically commence on the date of closing and the final bill is sent to the seller).
- In homes heated by oil, an adjustment is made for the cost of the oil remaining in the tank.
- Property maintenance
There are a variety of miscellaneous expenses that a Buyer may incur and that should be considered when determining his or her budget. For example:
- the cost of a home inspection
- the cost of a survey
- home/fire insurance
- moving company expenses
As well, costs incurred relating to financing should be considered such as possible mortgage application costs, and interest of the mortgage to the interest adjustment date, which is the date the new mortgage effectively, begins and any carrying costs such as bridge financing.
Conclusion to all this; ideally to properly budget and ensure there is no cash-flow crunch at the time of closing, the buyer should have a good idea of the majority of costs as early as possible.