Below are the typical costs incurred at the time of closing a property, (but not an exhaustive list so please don’t sue me). Also some information related to closing issues that all Buyers should be aware of before the scheduled date for closing.
When you decide its time to Offer to Purchase a property you will have to submit a deposit cheque, which will be held in trust by the listing brokerage or in a lawyers trust account if the offer is accepted. The cheque is approximately 5% of the sale price or more/less depending on the circumstances, the market area and closing date. The cheque is sometimes certified, or wired by electronic transmission and deposited in a trust account shortly after acceptance of your offer.
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 maybe be necessary to have a new one prepared by an Ontario Land Surveyor as mortgage lenders and your lawyer 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 $1,000 – $1,500 for a residential home.
Title insurance is an alternative to an up-to-date survey. There are a variety of insurers that provide this product including the your lawyer. The cost of title insurance is based on a sliding scale depending on the value of your purchase. For example the policy could protect you against existing liens against the title or violations of municipal zoning by-laws. Typically, costs are between $300 and $500. A note of caution: title insurance does not correct title problems. It merely compensates the Buyer as a result of negative impact resulting from a title defect. This is why it maybe advisable to have fully represented survey. Please consult your lawyer.
LAND TRANSFER TAX
Purchasers of real estate in Ontario are required to pay provincial Land Transfer Tax on closing. It is paid directly to the Province of Ontario. It is based on the following formula:
- 0.5% is paid on the first $55,000 of property value;
- 1% is paid on the next $195,000 of property value;
- 1.5% is paid on the next $150,000 of property value; with
- 2% paid on any value in excess of $400,000
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. There is no municipal (Blue Mountain, Collingwood Meaford) Grey or Simcoe county land transfer tax grab. First time Buyers may be eligible for rebates under the provincial scheme. Legal advice should be sought as to eligibility.
You will require the services of an Ontario lawyer to act on your behalf and to close your property purchase. Your lawyer will charge you for services, including title searching, and for their expenses (disbursements). I will recommend 3 local lawyers (Collingwood, Thornbury, Meaford, Grey Highlands and Owen Sound) if you do not have one already. Before retaining a lawyer, you should ask him/her for a complete breakdown of fees, disbursements, and mortgage work. Most legal work for home purchases exceeds $1,500 and can be much higher under certain circumstances. Be sure to ask first. I would suggest a local lawyer, they understand and have their ear to the local economy and understand what rumor and what can be trusted.
There will be other costs which the lawyer will have to pay on your behalf. Basically things like photocopies, tax certificates, zoning clearance and work orders, couriers, registering of the deed and mortgages, searching executions, mortgage schedules, status certificates (for condominiums) and other incidentals. These disbursements will be in the range of $600 – $800.
FEDERAL IDENTIFICATION INFORMATION
The Federal Government has implemented legislation that requires real estate brokerages under the auspices of the Financial Transaction and Reports Analysis Centre of Canada “FINTRAC” to identify the parties to real estate transactions.The legislation is designed to prevent money laundering and the movement of the proceeds of crime. I am required to obtain information from you and to complete various forms to be retained in Chestnut Park’s files. Just to let you know this is not a direct cost in this transaction, we pay for this oversight in our taxes. You really do not want to know my opinion on this program.
STATEMENT OF ADJUSTMENT
Balance due on closing – 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.
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 (usually 200 gallons).
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. These adjustments, including the Ontario New Home Warranty Fee, could amount to $3,000 or more.
PROFESSIONAL HOME INSPECTION
This is usually around $400 and up. The cost will vary with the size of the home and buildings being purchased and the inspection company used.
These vary from $200 per hour and up, depending on the company and the number of movers. It will also depend on the size of the vehicle, the length between pick up and drop off and the time of the month and year you are moving. I just had a client that moved their 2 children from downtown Toronto to Thornbury total cost $3500 plus HST include 4 guys and a huge truck.
FIRST MORTGAGE COSTS
Interest adjustment – This is something some Buyers do not understand. Basically, if you are arranging a new first mortgage, your lawyer will receive the mortgage monies from the mortgage company on the morning of the closing date.
However, most mortgage companies use the 1st or the 15th of the month as a payment date. Therefore, if you are closing a deal on, say August 10th, the mortgage company will deduct from the mortgage monies interest from date of closing (10th) to the first of the following month (i.e. September 1st) – interest adjustment date – and your first payment will then commence the 1st day of the following month (i.e. October 1st), and continue on a monthly basis thereafter.
Most lenders will require an appraisal and the cost of the appraisal will be paid by the lender but will be in the cost of the loan.
Example: on a $100,000 mortgage at 5.5% interest from the 10th to the 1st of the following month, interest would amount to approximately $316 and instead of getting $100,000 from the mortgage company on closing, you will receive only $99,684. (Interest adjustment costs will not affect every mortgage, as some will have payment commencing one month after closing.)
Loan processing or bank appraisal fee – estimated cost about $300. Most mortgages will demand a higher processing fee. A high ratio mortgage is one in which the Buyer is seeking financing in excess of 80% of the purchase price, or in some cases the approved value of the property.
SECOND MORTGAGE COSTS
Usually require the payment of additional legal fees, appraisal and brokerage fees. These vary dramatically, depending on the transaction and the risk as perceived by the lender.
Re-sales – most used residential re-sales are exempt from HST, but there are always limitations. Almost all services involved with the transaction will be subject to HST, e.g. real estate commissions, lawyer’s fees, appraisals, processing fees, home inspections, septic pumping, well inspection, WETT, insurance, moving cost, etc.
Substantially renovated houses – are subject to HST if purchased from the builder/renovator. This will be noted!
Commercial properties – are subject to HST including farms even when you have no intention of farming the land. Bottom-line if HST was ever produced on the property the property will have tax implications. This is a complex area and individuals must seek advice from a specialist, e.g. accountant, tax lawyer.
New housing – is subject to HST. It is also a complex topic. In some cases the HST will be included in the purchase price. There are also H.S.T. rebates available in a number of instances. These rebates are most often assigned to the builder.
Vacant land – this is a very complex HST area. Vacant land attracts HST in most, but not all cases. As a cautionary note assume that it does until the nature of the land, its use and its ownership can be clarified by a specialist a lawyer or accountant.
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).
A number of insurance concerns have developed in the real estate industry that could have a financial impact for a Buyer on closing. With my building knowledge and your home inspection we try to limit the surprises. Although an exhaustive explanation is not possible here, Buyers should be aware of the following:
- 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 depending on drywall and the areas of the building that are affected.
- 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.
- 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.
- 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.
In summary these concerns will be dealt within the conditional time of your contarct or we will ask to extend the agreement. I want to assure yo are comfortable with the whole process of buying your home.