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Closing Costs: What Every Buyer Should Know
Dated: August 21 2020
Buying a home entails costs beyond the purchase price. Some of these closing costs are relatively small. Some - like the Property Transfer Tax - are quite substantial. So it's important to budget for them before you start looking.
Some closing costs are actually “pre-closing” costs - you’ll have to pay them in the conditional period between an Accepted Offer and a Pending deal. (If you don’t know what I’m talking about here, shoot me a quick text and I’ll fill you in.) These pre-closing costs include (but are not strictly limited to):
A typical inspection costs $300-$600, plus GST, depending on the size of the home. Sometimes the seller will have an inspection performed prior to listing - the buyer can still choose to hire their own inspector. Especially in multiple offer situations in hot sellers’ markets, the inspection clause may be waived altogether, but this is rarely desirable from the buyer’s point of view. That's a diplomatic way of saying "Don't do it."
An appraisal isn’t always necessary, but lenders will sometimes require one when Buyers put down more than 20% of the purchase price or when the value of the home is in doubt. In the first case mortgage insurance isn’t obligatory - which gives the money guys the heebie jeebies - and in the second the lenders might be concerned they’ll be stuck with a home worth less than the loan should the buyer default. An appraisal will usually set you back $300-$450. Banks and mortgage brokers will often cover the cost - but not always.
Lenders usually require buyers to have home insurance, and you’re going to want it, anyway, because your house might burn down or be swept away by a tsunami. Who knows? This is the world we live in. The cost will vary depending on the type of property and the coverage desired, and you'll have to have your insurance sorted prior to closing.
After subject conditions have been removed and Closing Day approaches, your lawyer will prepare a Statement of Adjustments that details your transactional debits and credits and shows the total amount owing. These costs are not due until completion, but you’ll typically settle them several days before so that Closing Day goes smoothly and title is transferred on time.
Property Transfer Tax
Property Transfer Tax is based on the “fair market value” of the house - usually the purchase price. The tax rate is
* 1% on the first $200,000
* 2% on the portion between $200,000 and $2,000,000
* 3% above $2,000,000
* a further 2% on any portion above $3,000,000
There are exemptions to the PTT, most commonly for First Time Buyers and for purchases of newly built homes.
Foreign buyers are subject to a further 20% transfer tax in the Capital Region, Greater Vancouver, and several other areas of BC. That's a bummer if you're a foreign buyer, so if you can avoid being one, I'd advise doing so.
This amount varies according to the purchase price, the complexity of the transaction, and the lawyer or notary used, but it's usually between $1000-$1500. This includes the lawyer’s fee as well as administrative charges like registering title and answering the phone because, you know, lawyers. I kid, I kid!
Goods and Services Tax of 5% is typically only payable on new construction - resale homes are usually exempt. (There are exceptions, so be sure to discuss this with your REALTOR® prior to purchase.) GST can be added to your mortgage, unless you’re eligible for a rebate, in which case you’ll have to pay the full amount up front.
There are myriad other costs that may or may not be applicable in your situation, but you'll likely to have to pay for movers, cleaners, assorted household goods and furniture, new locks, and minor touch-ups and repairs to your new home. You can't plan for every unseen eventuality, but this is one of the reasons you work with a REALTOR® - to have the conversations that head off the worst of the known unknowns.
A Victoria resident for over 20 years, I grew up in Halifax and studied at Dalhousie University, Concordia, and the National Theatre School. Several years in the music industry then led to an extended....
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I once showed my own listing to a potential buyer who took delight in pointing out what he saw as the property’s innumerable deficiencies. I’m a pretty open-minded fella and I've learned