What Does It All Cost?
Always budget and expense high and income low. Better to have some money coming back than have to scramble for additional funds at the last minute, and risk the transaction being affected.
A lawyer colleague used to like to point to his office walls and say to his clients, "We don’t sell shoes, hats or cars -- all we sell is time -- so buy it wisely."
Maybe that’s putting it too bluntly, but the fact is that legal costs (fees, taxes, disbursements, etc) are usually based on the time the service takes and the service being provided. Many lawyers don’t charge for quick telephone advice for existing clients. After that, the cost is related to the time involved and the complexity of the matter. Frankly, when it comes to a real estate transaction, the purchase price also comes into play. This is similar to real estate agents who charge the seller a percentage of the purchase price.
Lawyers are one of the few professions charging less than half of what the same transaction would have cost many years ago. I am not belly-aching but bear this in mind when reviewing costs with your lawyer.
My costs are based on a suggested fee schedule published by the Lawyer’s Working Group on Real Estate. To have a look at the suggested fee schedule here: Suggested real estate fee schedule. It is pretty self explanatory.
Always to be sure to clarify the costs with your lawyer and shop around - you get what you pay for ! Also, when shopping, be sure to compare total costs that include fees, office disbursements, taxes, registration fees, etc.
For litigation or other court matters, you should ask for and agree upon an hourly rate or fixed cost.
Buyers and Sellers who are trying to budget should also remember that there are often other expenses to be considered.
You paid a deposit with the offer. This deposit will be deducted from the purchase price as money already paid.
Your down payment is the amount of money you have available from your 'own pocket to put toward the purchase price and cost of buying the place. This usually represents your equity in the property, equity being the difference between the property value and the amount you owe against the property.
You will also need fire/liability insurance for the property.
Property Taxes
If the vendor has paid more than his proportionate share of this year’s taxes, the seller will repay those taxes. The amount will be shown on the "Statement of Adjustments" prepared by the seller’s lawyer. If the vendor has not paid his proportionate share of this year’s taxes, the buyer will get a credit for that amount on the “Statement of Adjustments”. Sorry, the “ Statement of Adjustments” is the document that details the amount of money to be provided or received by your lawyer on closing. It shows the purchase price, the deposit, property taxes and any other item that affects the final payment amount. Your lawyer will review it with you in some detail, not to worry.
Fuel Oil/ Propane
The agreement typically requires the seller to leave the propane or oil tank(s) full for closing. The buyer will be charged for this cost. The amount will be shown on the “Statement of Adjustments” prepared by the seller’s lawyer. As a seller you provide the fuel oil/propane. As a buyer you pay for the full tank of fuel oil/propane which awaits you at the house.
Utilities such as Hydro and Natural gas
Be sure to contact all utility providers and establish an account. If some utility costs are prepaid or if there is rented equipment on the property (propane tank or hot water heater for example), there may be adjustments which will add to your costs on closing.
Buying with a Mortgage
If you are one of the vast majority who have to get a mortgage, you should find out from your bank, mortgage broker or lender, which of the items below may be required. Read through them anyway. Remember, there is no magic to a mortgage. The lender provides cash; you repay the lender! If you do not repay, you authorize the lender to do all sorts of things, such as take your property and sell it, applying the sale proceeds to the debt. Very few mortgage terms are negotiable. If you want the lender’s money, you do what the lender says and you agree to what the lender wants - simple as that!
An up to date survey
If there is not a good and recent survey plan showing the current buildings and improvements you may have to get one or get title insurance. Cost varies with survey complexity. I recommend consulting a survey for a budget amount.
Title Insurance
This is often accepted by lenders as an alternative to a new survey.
The price of title insurance is tied to the purchase price and the complexity of the transaction. Budget $500.00 but it depends on what you are actually buying such as a residential home in town, a residential home in the country, waterfront, farm land, investment property….you get the idea.
Appraisal
Budget $400.00-$600.00.
Home Inspection
Budget $400.00 - $500.00 AND GET ONE!! I may be able to arrange a discount. Contact me for a referral.
Broker’s fees, lender’s bonus and CMHC Canadian Mortgage and Housing Corporation (CMHC) fees all cost money, but who pays how much?
Be careful to clearly understand them before you sign a mortgage commitment.
Be sure the mortgage broker explains mortgage default insurance and the cost. This insurance will pay the bank the amount owing on the mortgage if you default on payments. The insurance company will then come after you for repayment. Ultimately, pay the mortgage/property taxes/fire insurance and everyone is happy. If you can pay the mortgage default insurance cost, or part of it, from your own resources that would be far less expensive for you in the long run. Mortgage default insurance cost is a lot, depending on the ratio of the amount of the mortgage to the purchase price. The closer these two numbers are, the greater the ratio and the greater the insurance and the greater the cost. Banks often suggest rolling this cost into the mortgaged amount. That makes it convenient on some levels. On other levels, it means you increase the amount you borrow. If you increase the amount you borrow, you increase the amount you have to repay. If you increase the amount you have to repay, you increase the interest cost and the loan becomes more expensive. If you work out the insurance cost over the life of the mortgage, it results in a lot of interest being paid on that amount. Be sure the broker tells you how much of the money actually borrowed will be advanced to me to use for your purchase. There are often deductions, such as mortgage insurance and applicable PST on the insurance cost. Just because you borrow, say, $180,000 does not mean I will be provided with $180,000 to put toward your purchase.
HST
In general, HST applies to ALL real estate transactions UNLESS the transaction meets one of the list of exemptions from the tax. PLEASE fully research the tax applicability to avoid a potentially painful and costly surprise. This is a good reason to consult your lawyer before signing your offer and committing yourself to a transaction you won't like. Usually a used house is exempt from the tax, but not always. Usually vacant land is exempt from the tax, but not always. Did you know that selling a house with an outbuilding and some vacant land is regarded as more than one transaction for the purpose of determining HST applicability; the tax may apply to some or all of the transaction!!! Revenue Canada has some good HST information on the federal government website. Surf the links or ask your lawyer or tax professional!! If you sign your contract without knowing all that is involved in the single largest transaction you will likely make in your lifetime, you do so at your own peril and you will have no one else to blame but yourself. Sad, but true!
HST will apply to the sale of real property that was used by the vendor/seller primarily to earn income. That adds and extra 13% to all or a portion of the total purchase price. The law determines how the tax will be handled. Ask your tax professional!!! Do not assume you know. This is a technical area of the law. You could find yourself on the proverbial hook for a substantial amount of money if you do not deal with the tax correctly.
For sellers, remember that HST applies to real estate commission. That is the most common ‘surprise’ sellers express when we review overall costs.
RESIDENTIAL REAL ESTATE, FARMS, BUSINESSES, VACANT LAND
As indicated above, my costs are based on a suggested fee schedule.
When you are shopping around, and I strongly encourage you to do that, make sure you get the same information so you can compare 'apples to apples', so to speak. Clarify if the price you get includes title insurance, office disbursement, HST, registration costs, etc.
In the meantime, feel free to contact my office in Stirling. We will be glad to answer your questions and help you learn more about one of your most important lifetime transactions.