Buying and Selling real estate, and homes, in particular, is a complex process and the money that changes hands is not actually limited to the down payment or sales price of the house. In fact, there are a number of additional costs in any deal for both the person selling their property and the person buying it. Of course, because these costs come from several different directions and are required for a variety of reasons, they are more difficult to predict and list than a simple sticker price on the home itself. Some depend on lawyer or inspection fees while others have to do with the terms of the old and new mortgages. If you’re on either side of the real estate equation or think you might be soon, you have every reason to prepare yourself for these often unforeseen closing costs.
Closing Costs for Buyers
Legal Fee and Disbursement
During the buying process, there’s a very good chance that you have a lawyer ready and able to help you generate and process documents and ensuring that the property is up to inspection standards. In general, a lawyer’s time during a real estate deal can vary between $500 and $150. This is often included in the concept of disbursement along with any fees required for a notary public, searches, and other legal activities during the purchase.
Sometimes included in legal fees, the title inspection ensures that the seller legitimately owns the property they’re selling you and that it doesn’t have any extra mortgages or liens on it.
Land Transfer Tax
Calculated on a percentage of the home price, most Canadian provinces will charge a land transfer tax whenever local property changes hands. This amount is somewhat discounted for first time home buyers but is almost never completely waived.
Mortgage Tax and Fees
While most mortgages don’t charge you a fee to set up, some do. Some also insist on a mortgage-related appraisal of the property which often costs one to five hundred dollars. Finally, you may have to or choose to get some mortgage insurance which covers defaults and other financial disasters that might affect your future mortgage payments. If you pay less than 20% down initially, you may be required to get at least a little default insurance.
A standing house still racks up a small amount of bills and, of course, the property tax. The seller’s responsibility stops the moment the buyer takes over the property, at which point these costs belong to the buyer. This means that if bills or tax was prepaid, the seller will be reimbursed for time unused. On the other hand, if bills or property tax are owed, the seller will pay their final share from the money received from selling the property.
Home and Title Insurance
Most mortgages require at least minimal home insurance, so make sure to budget for it. You can also get title insurance which will protect you from mortgage fraud and identity theft further down the line.
Closing Costs for Sellers
The realtor you used to find a buyer and expedite the sale gets a commission when the sale is complete. Depending on your pre-sale agreement, each realtor will receive a commission somewhere between 2.5% and 5% of the final sale price.
The lawyer you hire to discharge the title and verify prepaid expenses like adjustment costs must be paid their fees along with any disbursements that were accrued during the selling process. This cost is usually on the lower end of the $500 to $1500 range.
If you still had a mortgage at the time of selling the property, you may be facing penalty fees for closing the mortgage early. The amount of this fee varies based on the type of mortgage you had and how early you’re closing it, but fees are usually much higher for fixed rate mortgages.
All of these additional costs to buying or selling real estate relate to the fact that a house exists on multiple bureaucratic levels. The process touches on title ownership, actual control of the property, and access to utilities at the very least, so it’s no wonder there are so many little extra costs.
For more information on how to prepare for your real estate transaction, contact us today!