Cost of Moving, and Surprises
CLOSING COSTS
At the time of closing of residential purchases of property, there are additional closing costs that are often unanticipated by buyers. The following are typical costs incurred at the time of closing, and some information related to closing issues that all buyers should be aware of before the scheduled date for closing.
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.
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 strctures), 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 $1,000.
TITLE INSURANCE
An alternative to an up-to-date survey is title insurance. There are a variety of insurers that provide this product including the Buyer's lawyer. The cost of title insurance is based on a sliding scale depending on the value of your purchase. 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.
LAND TRANSFER TAX
Purchasers of real estate in Ontario are required to pay provinvial 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.
In addition, a municipal Land Transfer Tax scheme was introduced for properties purchased in Toronto with closing dates on or after February 1, 2008. The formula is as follows:
- 0.5% is paid on the first $55,000;
- 1% is paid on the next $345,000 (up to $400,000); and
- 2% is paid on any value in excess of $400,000
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.
LEGAL FEES
You will require the services of an Ontario lawyer to act on your behalf to close your house purchase.
Your lawyer will charge you for services, including title searching, and for his/her expenses (disbursements).
Your sales representative can recommend 3 lawyers to you 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.
DISBURSEMENTS
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.
STATEMENT OF ADJUSTMENT
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.
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. There are numerous additional adjustments in these purchases. 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 being purchased and the inspection company used.
HOME INSURANCE
This varies. Minimally, costs start at $500. Call for quotes. N.B. - 1st mortgage must be noted on policy.(Home insurance has become a serious closing issue. See details below.)
MOVING COSTS
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 and the time of the month and year you are moving.
FIRST MORTGAGE COSTS
Interest adjustment - This is something most 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.
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 - Usually about $300. High ratio 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.
HST
Re-sales - although most used residential re-sales are exempt from HST, 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, insurance, moving cost, etc.
Substantially renovated houses - are subject to HST if purchased from the builder/renovator.
Commercial properties - are subject to HST. This is a complex area and individuals should seek advice from a specialist, e.g. accountant, tax lawyer.
New housing - is subject to HST. It is also a complex topic. Often the HST will be included in the purchase price. There are also HST rebates available in a number of instances.
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
CLOSING DATE
Just a note at this point about the procedure on the actual closing date. It will benecessary 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 adviseable 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).
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:
- 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. - Hydro Service
Insurance companies are refusing to insure properties with 60-amp service andhomes 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. Properties owned by absentee owners/landlords may also raise concerns.
What Day is the Right Closing Day ? Did you guess Wednesday?
1. Do not choose a Friday at the end of a month. This is typically the busiest day in most real estate law offices, especially in the summer. This results in many deals not being able to close until late in the day, close to 5 or 6 pm. Worse, if the deal has to be extended, you don't get keys until the following Monday, or maybe Tuesday if it is over a long weekend.
2. Close your deal on a Wednesday, if possible. If there are delays, it is much easier to manage a one day extension than an extension over a weekend.
3. Sellers, you need to plan to be out of your home by 3 pm on the closing day. Under most real estate contracts, sellers must turn over possession as soon as the deal is registered electronically. In normal practice, when the closing is not at the end of a month on a Friday, the deal will likely be registered by 2 - 3 pm. Vacant possession must be given to the buyer at that time. There was a case where a seller had to compensate a buyer for increased moving costs when they were late getting out of the home.
4. If you are buying and selling a home in the same time period, close your purchase 2 days early and get bridge financing to assist you. You will close your deal without pressure and have a few days to move in while you wait until your sale closes. This will also make it much easier to negotiate an extension, if you have to, as you will not be dependent on the money from your sale to close your purchase.
5. Sellers, remember that you must turn the house over in broom swept condition, which means no garbage. Buyers, make sure you schedule you schedule your final visit 2 days before closing to make sure that the seller is properly cleaning up.
6. Buyers should not plan to move in until late in the day or the day after closing, as you do not want to have to pay extra to your movers if the closing does not happen until late in the day or the deal has to be extended.
7. Even if you are not moving in on the day of closing, buyers must make sure to get in and check the condition of the home on the day of closing, to make sure that nothing has been broken or damaged since the date that you signed your contract to buy. The seller typically only warrants that everything will be working on the closing date, not afterwards, so find out right away if you need to make a claim about anything after closing.
By doing your homework before choosing a closing date, you should be able to avoid pitfalls later.
