Getting ready to buy and/or sell your first property can be a daunting task as there is a myriad of information and choice available to you, the Buyer and the Seller. The actual purchase price or selling price of a property is only part of the cost for a successful real estate transaction to close. There are obvious budget allowances, such as the down payment, but then there are also some not-so-obvious expenses. It is the “not so obvious” that I will highlight in this article.
I would be remiss if I did not encourage all of you to align yourselves with reputable professionals — Realtor, Lawyer, Mortgage broker and Home Inspector — as these professionals will be working in your best interest to ensure that your real estate transactions are successful.
1. Home Inspection: An “Agreement of Purchase and Sale” usually has a clause conditional upon the inspection of the home by a home inspector at the buyer’s own expense. This condition is included to identify any existing and/or potential underlying problems in a property. The cost is typically $350.00 to $500.00 plus HST but can be higher depending on the size of the home and the extent of services requested. It is becoming quite popular now to request that the inspector use geothermal imaging (to test for temperature changes) and radon testing. These extra tests will cost a buyer more money.
2. Appraisal Fees: If financing is required for a property, the financial institution that will be holding the mortgage for the buyer will require an appraisal of the property to ensure that the home appraises for the selling price to satisfy the mortgage requirements. The average cost of this is $300.00 to $400.00 and is borne by the buyer.
3. Mortgage Loan Insurance: When the down payment for a property is less than 20%, mortgage loan insurance is required. It protects the lender in case the buyer defaults on the mortgage. Premiums range from .5% to 2.75% and can be higher if one is self-employed. This amount is added onto your mortgage amount. Go to the CMHC website (http://www.cmhc-schl.gc.ca/en/co/moloin/index.cfm) for more information.
4. Land Transfer Tax (LTT): A “Provincial LTT” applies to all properties in Ontario, including Toronto. This tax is a percentage of the purchase price and varies depending on the value of the property. Buyers who buy a property in Toronto also have to pay an additional “Toronto Land Transfer Tax”.
The formula for the Provincial LTT is:
– 0.5% on the first $55,000
– Plus 1.0% of the amount from $55,001 to $250,000
– Plus 1.5% of the amount in excess of $250,001 to $400,000
– Plus 2.0% of the amount in excess of $400,000
Note: First time buyers of newly constructed homes and resale homes receive a rebate of up to $2000.00
The formula for the Toronto LTT is:
– 0.5% on the first $55,000
– Plus 1.0% of the amount from $55,001 to $400,000
– Plus 2.0% of the amount in excess of $400,000
Note: First time buyers of newly constructed homes and resale homes receive a rebate of up to $3725.00
To recap: Homes purchased in Toronto pay both the Provincial LTT and the Toronto LTT. Homes purchased outside the Toronto area pay just the Provincial LTT. This tax is calculated by your lawyer and is part of the costs on closing.
5. Title Insurance: This insurance protects against title defects, liens against title, title fraud, encroachment problems and other issues related to title. Your lawyer will recommend that you purchase this insurance. It is a onetime fee and the cost depends on the price of the home. The cost is typically a few hundred dollars, but worth the peace of mind. Speak to your lawyer about the insurance company they would recommend.
6. Legal Fees: The lawyer has to do many searches, draw up mortgage documents and tend to the closing details. Lawyer’s fees for these services do range depending on the complexity of the deal but will probably be at least $700.00. Disbursements and HST are additional.
7. Adjustments: As per the “Agreement of Purchase and Sale” the buyer will have to reimburse the seller on a prorated basis if some bills have been prepaid beyond the closing date (e.g., property taxes, maintenance fees). Your lawyer will process these adjustments on your behalf.
8. Service Charges: The buyer will be charged a fee to hook up new services and utilities such as telephone, hydro, cable and internet. Call the appropriate companies ahead of time to find out their hook up costs.
9. Property Insurance: This insurance covers the replacement value of your home and its contents. Your lender will insist on this because your property is the security for the mortgage. In simple terms no insurance, no mortgage, no home.
10. Property Taxes: Taxes and more Taxes- a fact of life. If you have a high ratio mortgage your lender may require that you have your property tax installments added to your mortgage payments. Keep in mind that if your property tax does go up, then you should have your mortgage payment reflect the increase so that you continue to pay the same amount off your principal each payment.
11. Condominium Fees: Condominiums charge monthly fees for common area maintenance and operations, such as landscaping, some utilities, security, etc. Fees range widely depending on the amenities offered. Make sure you are aware of these monthly costs when budgeting.
12. Moving Costs: Include the cost of a professional moving company or a rental truck if you plan to move yourself. For the professional moving company they usually charge by the hour but will provide you with a ballpark figure in advance. The cost will depend on: the travel distance, if you require assistance with packing, the cost of moving boxes and the type of items you have to move, (e.g., large items like appliances, piano, etc). Get two to three quotes from reputable moving companies and make sure they all carry insurance.
13. Tarion Warranty: When purchasing a brand new property, whether a freehold or a condominium from the builder, the builder pays a warranty enrollment fee. Tarion then provides the builder with an enrollment number. Some builders include the fee in the purchase price of the property, while others show it as a cost on the statement of adjustments. The cost of the warranty depends on the cost of the property. Go to www.tarion.com/warranty- protection for more info.
Sometimes, as owners, we can’t see beyond the emotion. Whether you are selling to downsize, upsize or because of financial reasons, it is hard to be objective, and therefore most sellers will hire a Realtor to navigate them through the process. Your realtor will discuss with you the best way to get the most money for your home, market and promote your home and be with you from the start of the process, offering advice and suggestions, right through to closing day and beyond. The relationship that ensues will hopefully be a lifelong partnership.
1. Real Estate Commissions: Generally the rate is 5% plus HST on the commission portion and is divided between the Listing Brokerage and the Co-operating Brokerage. Commission rates have changed over the years and there are now more options available to a seller with varying levels of service being offered. Do your homework and remember that your home is one of your biggest assets and hence, “you get what you pay for”.
2. Legal Costs: The legal costs for selling a home are similar to the comments as outlined in the buyer’s costs section.
3. Mortgage Discharge Penalty: This is a penalty that must be paid by the sellers if they are discharging their current mortgage prior to the end of the term. The penalty is the greater of: three months interest or an interest rate differential (IRD). Check with your lender for an accurate cost as the calculation can be quite complicated.
4. Moving Costs: See comments in buyer’s cost section.
5. Repairs and Maintenance: Today’s buyers are looking for move-in-ready properties. Make sure you take care of any necessary repairs before putting your home on the market, such as a fresh coat of paint, re-caulk tubs and bathroom fixtures, wash windows, fix leaking taps, change furnace filters, clean and tidy. You can hire people for this or do it yourself.
6. Staging: Staging your home can add thousands of extra dollars in your pocket. Creating the right atmosphere for today’s buyers is critical. The costs for staging can be additional or are included as part of the services offered by your realtor. Costs will vary depending on what is required.
7. Pre-Inspection Reports: Pre-inspection reports are becoming quite common, especially in the Toronto market where demand is higher than supply. Sellers will hire a home inspection company to come in and identify any existing or underlying problems prior to having their home on the market. The Seller may elect to address some of these issues or not. The idea is to disclose these issues to potential buyers ahead of time so they are aware of them going into the negotiating process. The cost for these inspections is in the range of $300-$500.
In summary, these are some of the additional costs that buyers and sellers should be aware of when purchasing and selling their home. Again, I would like to reiterate how important it is for you to surround yourself with reputable professionals. Having trustworthy people working on your behalf makes the whole process run more smoothly and the experience a much better one for all involved.