What Every Buyer and Seller Should Know About Closing Costs

Closing Costs Explained

Costs Related to a Real Estate Transaction

The conveyance of real property results in the payment of certain expenses by the parties involved. Set forth below is a brief summary of these expenses, that are incurred when transactions are handled properly and professionally, viewed both from the position of the Buyer and from the position of the Seller. Buyers should budget approximately 2-3% of the purchase price for closing costs.

DEPOSIT

At the time of presenting an Offer to Purchase you will have to submit a deposit 
cheque, which will be held in trust by the listing broker if the offer is accepted. The 
cheque is usually between 5% and 10% of the sale price or more depending on the
 circumstances and closing date. The cheque is usually certified and deposited the day
 after acceptance. Occasionally the deposit funds are wired by electronic transmission.

PROVINCIAL LAND TRANSFER TAX

Purchasers of real estate in Ontario are required to pay provincial Land Transfer Tax
 on the date of final closing. It is paid directly to the Province of Ontario. It is based on the following
 formula:

The tax rate has not changed since June 1st, 1989

$0 – $55,000 .5% (.5% of $55,000 is $275)

$55,001 – $250,000 1.0% less $275

$250,001 – $400,000 1.5% less $1,525

$400,001 and up 2.0% less $3,525

Example: To calculate the Land Transfer Tax on a purchase price of $275,000 multiply the purchase price by 1.5% and deduct $1,525

($4,125 – $1,525 = $2,600)

In short $4,475 in provincial Land Transfer tax is owed on the first $400,000 with 2% 
payable on any value in excess of that amount.

FIRST-TIME Buyers of both new and resale homes are eligible for a rebate of the Provincial Land Transfer Tax of up to $2,000. If the refund is claimed at time of registration, it may offset the land transfer tax ordinarily payable. If not claimed at registration, the refund may be claimed directly from the Ministry of Revenue. No interest is paid on this refund

For further information, please go to:

http://www.rev.gov.on.ca/en/refund/newhome/index.html

TORONTO LAND TRANSFER TAX

This is paid by the Buyer at the date of final closing to the City of Toronto. The tax is based on the purchase price and the current rates became effective on February 1, 2008.

$0 – $55,000 .5% (.5% of $55,000 is $275)

$55,001 – $400,000 1.0% less $275

$400,001 and up 2.0% less $2,900

FIRST-TIME Buyers of both new and resale homes will receive a rebate of the Toronto Land Transfer Tax of up to $3,725. This is equivalent to a 100% rebate on homes purchased for up to $400,000.

For further information, please go to:

http://www.toronto.ca/taxes/mltt.htm

Land Transfer Tax CALCULATOR:

http://www.torontorealestateboard.com/buying/LTT_calculator/index.htm

FIRST-TIME Buyers may be eligible for rebates under both or either of the provincial or
 municipal schemes. Legal advice should be sought as to eligibility.

DISBURSEMENTS – PURCHASE

In addition to the payment of Land Transfer Tax, Buyers are responsible to pay for certain disbursements incurred by their lawyer in respect of various certificates, searches and registrations. Examples of such approximate disbursements are as follows:

  1. I. Registration of Deed $70.50
  2. II. Registration of Mortgage $70.50
  3. III. Disbursements (including search costs & office costs $400.00

For a typical purchase (including one mortgage), a Buyer should budget about $550.00 for disbursements. There will also be further costs for adjustments, land transfer taxes and legal fees.

SURVEY

If the seller does not provide the Buyer with an up-to-date survey in the Agreement of
 Purchase and Sale (showing the existing location of fences, buildings and structures),
 it will often be necessary to have a new one prepared by an Ontario Land Surveyor as 
mortgage lenders may require it. Solicitors will not give an unqualified opinion of
 title without an up-to-date survey. Typically and depending on the circumstances a 
survey will cost in the range of $1000-$1500. Title insurance will take care of the problems incurred in the absence of a survey or an up to date survey. It is highly recommended that title insurance be obtained in the absence of a survey.

TITLE INSURANCE

Title insurance insures against past problems that could affect your ownership in the future. A low, one-time premium covers you for loss or damage up to the policy amount and all legal costs you would have to pay to defend your title. Once the policy is issued, a covered title problem is not your concern, it becomes the responsibility of the Title Insurance Company. No survey is required by your lending institution if you have title insurance.

Costs associated with Title Insurance are approximately $378.00. The premium increases when the mortgage amount is over $500,000 or the purchase price is over $1 million

DISBURSEMENTS – SALE

The Seller in a real estate transaction is not required to pay any Land Transfer Tax. However, the Seller is responsible to pay for certain disbursements incurred by their lawyer such as:

Registration of a Discharge of Mortgage $70.50

Disbursements (including transactions levy and office costs) $200.00

LEGAL FEES – NORMAL

Approximation of average legal fees on a residential real estate transaction are as follows:

Purchase $650 to $750 for purchase price up to $750,000

Sale $550 to $650 for sale price up to $750,000

ADJUSTMENTS ON CLOSING (BETWEEN BUYER AND SELLER)

On closing there will be adjustments to the sale price between the Seller and the Buyer which will appear on a Statement of Adjustments as credits in favour of the Seller or the Buyer. If the Seller is relying on receiving or if the Buyer is relying on paying a fixed amount on closing, it is unpleasant if these adjustments come as a total surprise to you.

Balance Due On Closing– basically the balance due on closing is the difference
 between the sale price and the amount of your deposit that was presented with the offer. However, there are certain other items that will be adjusted at the time of
 closing.

Taxes – if the Seller has paid taxes for the full year, the Buyer will be responsible for
 his/her portion from time of closing until the end of the year.

For example, if taxes for the calendar year are $4,000.00 and the deal closes June 30th the Seller has paid the taxes for the entire calendar year, there will be a credit on closing to the Seller for $2,000.00 more and the Buyer pays $2,000.00 more.

Fuel – if the property is heated by oil, then the tank will be filled by the Seller on
 closing, and the Buyer will be charged on the adjustment with a full tank of oil
.

For example, if the adjustment were approximately 52 cents/L for 909 L, the Seller would receive $450.00 more and the Buyer pay $450.00 more on closing.

Utilities – all utilities and gas that are metered will be read on closing and the seller
 will be responsible for them up to the date of closing.

These are normal adjustments. Particular attention should be paid to new
 construction transactions, especially condominiums. There are numerous additional
 adjustments in these purchases. These adjustments, including the Ontario New Home 
Warranty Fee, could amount to $3,000 or more.

MORTGAGE INSURANCE

In the event that the amount of your First Mortgage on your purchase transaction exceeds 80% of the purchase price (non-conventional mortgage), it will be necessary for you to purchase, for the protection of the Lender, mortgage loan insurance. This mortgage loan insurance premium that is paid is to protect the Lender in the event that the mortgage is not paid. This is not to be confused with life, disability, or job loss insurance.

The mortgage insurance is normally purchased through CMHC (Canada Mortgage and Housing Corporation) or GEMI (GE Capital Mortgage Insurance Canada). The cost of the insurance premium is paid by the Buyer. The amount of the mortgage insurance premium is calculated using a loan/value ratio, and may be added to the mortgage amount. The premiums are as follows:

a) Up to and including 80% 1.00%

b) 80% to 85% 1.75%

c) 85% to 90% 2.00%

d) 90% to 95% 2.75% – 2.90%

e) 95% to 100% 3.40%

For further information, please go to:

http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_005.cfm

Other high ratio financing costs include an application/appraisal of $165 and there is an 8% provincial sales tax on the mortgage

HOME INSURANCE CONCERNS

A number of insurance concerns have developed in the real estate industry that could
 have a financial impact for a Buyer on closing. Although an exhaustive explanation
 is not possible here, Buyers should be aware of the following:

1. Knob and Tube Wiring - This is an older form of ungrounded wiring that some insurers may not cover or may
 only do so at greatly inflated premiums. In some cases buyers may be denied
 insurance altogether or until such time as the house has been rewired. These costs 
could easily exceed $5,000.

2. Hydro Service - Insurance companies are refusing to insure properties with 60-amp service and 
homes with fuse panels instead of breakers. As in the case of knob and tube wiring,
 hydro service may have to be increased to at least 100-amp service before insurance
 can be obtained.

3. Oil Tanks - Insurance companies are refusing to insure homes with oil tanks that have not been
 certified by a Technical Standards and Safety Association (TSSA) technician. This is
 particularly true for oil tanks that are older than 25 years. In addition, fuel oil
 companies will no longer provide fuel oil to homes with tanks that have not been
 certified. Cost of a new fuel oil tank can be in the range of $2,000. Underground fuel
 oil tanks are now subject to strict regulation and in most cases must be removed.
 Seek advice before buying a property with an underground tank.

4. Other Issues - Generally, insurance companies have been shedding risky (in their opinion) policies.
 In some parts of the country the age and type of structure have also become issues. In
 Ontario, galvanized steel plumbing is becoming an insurance concern as is insulbrick 
siding in some cases. Properties owned by absentee owners/landlords may also raise 
concerns.

PROFESSIONAL HOME INSPECTION

This is usually around $400 and up. The cost will vary with the size of the home
 being purchased and the inspection company used.

CLOSING DATE

Just a note at this point about the procedure on the actual closing date. It will be
 necessary for your lawyer to obtain the money from the mortgage company on the
 day of closing.

Lawyers often have many deals closing on busy days, and it is often difficult for 
them to arrange a closing time until later in the day. It is probably not advisable to
 plan for an early morning move into your new home.
 Please discuss this with your lawyer.

Your lawyer should be in touch with you within the week prior to closing to arrange
 an appointment to sign and bring in the necessary closing money (appointment 
probably day prior to closing).

Yasmin Merchant

Yasmin Merchant

Sales Representative
CENTURY 21 Innovative Realty Inc., Brokerage*
Contact Me

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