When you are first contemplating the purchase of a home, you should retain a lawyer to guide you through the transaction. The lawyer will be pleased to answer any questions you may have with regard to the Agreement of Purchase and Sale, mortgage options and costs to be expected. In most cases, the advice provided prior to signing the Agreement of Purchase and Sale is considered to be part of the Lawyer’s tasks in the purchase of real estate and the Lawyer would not charge extra for this advice.
After the Agreement of Purchase and Sale has been signed, get the Agreement to your Lawyer as quickly as possible. The Lawyer will then commence the various searches he does on your behalf. These searches include contacting the Municipality’s Building and Zoning Department to confirm if the property complies with all applicable zoning by-laws and whether or not there are work orders against the property. In order to confirm that the vendor is leaving no unpaid bills, the Lawyer will obtain Certificates from the Municipality’s Tax, Water, Hydro and Gas Departments. Your Lawyer will then conduct a search of title to determine if the vendor owns the property. The agreement of purchase and sale provides that these searches should be completed within a predetermined time. It is important as a purchaser that your agreement give your solicitor sufficient time to complete these searches.
As the transaction moves towards closing, the Bank will forward instructions to the lawyer so he can prepare the mortgage documentation.
One or two days prior to closing you will be asked to attend in your lawyer’s office to execute all documents and bring in the balance of the funds required to close your deal. These funds will include the balance of the down-payment together with the closing costs.
On closing date your lawyer will pick up your mortgage funds at the bank and then arrange to get the funds to the Vendor’s Lawyer. In some regions such as Halton and Peel the registry Offices have become automated and the transactions are registered electronically. Once all documents have been registered your lawyer will get the key from the Vendor’s lawyer and will return with it to his office. You can then come and pick up your key. Real Estate transactions tend to close on Fridays and the last Friday of the month is a particularly busy day in the summer. The number of transactions closing on these busy days means it is difficult for your lawyer to get your keys early in the day. If you have any control over the closing date it will be much less hectic for you to close on a date other than these busy days.
Following closing date your lawyer will send a report outlining what he did for you in the transaction and giving his opinion that you have good title to the property. This report will include copies of all documentation signed by yourself and your duplicate deed. This report should be in your hands within 30 days of closing. Your lawyer will also contact the Municipality and advise them you are the new owner of the property.
Land Transfer tax is calculated as a percentage of the purchase price. At present the tax is .5% on the first $55,000.00, 1% from $55,000.00 to $250,000.00, 1.5% from $250,000.00 to $400,000.00 and 2% above $400,000.00 ie tax on $200,000.00 is $1,725.00. The City of Toronto has been given taxing powers and as such the Land Transfer Tax for properties in the City of Toronto is doubled.
First time buyers of new houses are entitled to a rebate of Land Transfer Tax of up to $2,000.00. This means no tax is payable on houses of $227,500.00.
A lawyer can only provide an opinion to the extent that a survey is correct, that the government search records are accurate and up to date and there has been no fraud relating to the public records. Title Insurance protects the Purchaser’s interest in title against these types of risk. See Title Insurance for a more in-depth explanation of title insurance.
We charge a fee of $850.00 plus disbursements on a purchase and $800.00 plus disbursements on a sale transaction. With disbursements the purchase account is $1,650.00 to $1,700.00 including fees, search disbursements, title insurance, registration of the deed and 1 mortgage and GST. In purchases greater than $500,000.00 the cost of title insurance increases and the total account increases as well.
A survey is one of the most important documents to be received on the purchase of your home. A survey is a plot plan of the lot showing the location of the house and any other structures on the land. The survey will disclose the existence of any easements or right of ways affecting the lands and will show dimensions of the front, side and rear setbacks.
You should expect to pay $2,000.00 to $3,000.00 in additional closing costs and adjustments to close a resale house and $3,000.00 to $5,000.00 or more to close a new home. These costs are made up as follows:
- Legal Fees $850.00 This is one area where you must talk to lawyers and get a number of quotes. In Oakville the fees to close a house in the $350,000.00 to $750,000.00 range with one mortgage will vary from $850.00 to $1500.00
- Disbursements $700.00 Disbursements are a flow through of the costs incurred by the lawyer in closing your deal. These charges include the building, tax, execution and utility certificates, photocopies, couriers, Title Insurance premiums and registration costs. Some lawyers use freelance persons to search title and close the deal and these costs are often passed on as disbursements.
- Land Transfer Tax is a sales tax charged by the Province and calculated as a percentage of the purchase price. The percentage is 1/2 of 1% on the first $55,000.00, 1% to $250,000.00 1.5% from $250,000.00 to $400,000.00 and 2% above $400,000.00. Example calculations are as follows:
Purchase Price Land Transfer Tax $175,000.00 $1,425.00 $250.000.00 $2,225.00 $350,000.00 $3,725.00 $500,000.00 $6,475.00 $1,000,000.00 $16,475.00
Realty taxes and Condominium Common Expenses are items that are paid for a particular period of time. In Oakville taxes are paid in four installments in advance and common expenses are paid in advance on the first of each month. On closing date it is quite possible that you will owe the vendor for taxes prepaid to the town or for the balance of the month’s common expenses.
- Mortgage Appraisal fees
An appraisal fee is usually charged when you apply for a mortgage.
- Mortgage Brokers fees
If you deal with a mortgage broker instead of a bank to obtain a mortgage he may charge a Brokerage fee. This fee in some cases can be in excess of 1% of the principal amount of the mortgage. You should confirm this fee with the broker prior to applying for the mortgage.
- Mortgage Application fees
Most financial institutions charge a fee to prepare the mortgage application. This amount is paid either at the time of application or is deducted from the mortgage advance on closing. i.e. CMHC $235.00
When you purchase a new home it is likely there will be many more adjustments and closing costs. While the resale agreement of purchase and sale was created by lawyers to be fair to both parties, most builder agreements favour only the builder. When you buy a resale house it is advisable to take the agreement to your lawyer prior to signing. When you buy a new house you must bring the agreement to your lawyer prior to signing. I outline some of the normal closing costs however each builder has different terms and each agreement must be reviewed.
- New Home Warranty $800-$1800
Builders of new homes in Ontario are obliged to enroll the subject property under the New Home Warranty Program. This enrollment fee is absorbed by the purchaser under the term of the Agreement of Purchase and Sale.
- Hookups & meters $1000.00
The agreement usually provides that the purchaser pay the cost of water and hydro hookup which averages $1000.00
- Driveway paving $600-$800.00
Some builders charge the purchaser the cost of paving the driveway.
- Tree Planting $150- $500
All subdivisions require the builder to provide a tree in front of the house and some builders pass this cost on to the purchaser.
- Subdivision damage deposit
Subdivision agreements require the builders to deposit $800.00 to $1000.00 per lot to ensure all lot grading will be completed to the satisfaction of the town. Recently some builders have been passing on this charge on to the purchasers. The money is refundable when the subdivision has passed final inspection. If you buy in the beginning of a subdivision you could wait 2 years for your money to be returned.
New homes are subject to HST. Most new home prices include HST with a rebate assigned to the Builder. This rebate only applies if the purchaser or a member of his immediate family is going to live in the house. If you are buying for investment purposes expect to pay the rebate in addition to the price.
- LOT LEVIES
The province has given municipalities the right to collect additional Lot Levies or development charges to build schools and hospitals.. Some builder agreements provide the Purchaser is responsible for any increase in lot levies or development charges that arise between the offer date and closing. It is very important that your lawyer review the agreement and ask the builder to cap this cost. Uncapped the increases could be in excess of $10,000.00.
For a limited time the Federal Government is permitting first time buyers to withdraw up to $20,000.00 each from their RRSP for the purchase of a house. There is no restriction on amount of the purchase. There is no tax payable on the withdrawal. The money must be repaid to your RRSP in 15 equal installments over the next 15 years. There are a number of restrictions on the plan so you should discuss the withdrawal with your bank and lawyer.
In the last few years the new home market has been booming. This has resulted in shortages of building materials and skilled labour. As a result of these shortages most new homes are late. The agreement of purchase and sale and the Ontario new Home warranty Plan provides the builder can unilaterally extend the closing date without paying the purchaser compensation if the builder provides sufficient notice.