Back when my soul was lost in a vortex somewhere and I was regularly doing real estate legal work I saw quite a few first time homebuyers, and believe me, those hope-filled, doe-eyed kids are like snowflakes- every one is different. I’ve seen everything from excited giggles and hugs to full-out crying breakdowns on my boardroom table. I don’t like crying clients- it’s awkward and I never know quite what to do, but that’s a topic for another post.
One thing that just about all first timers have in common is a general lack of understanding of the fees and charges that they’re going to face on closing day. I can’t blame them, either- there are quite a few costs to keep track of, and when buying a house it’s easy to focus on the big picture things (like “OMGWTF am I doing?!?”, “How on earth can I move all my stuff?”, and “Should I get draperies in mauve or taupe?”) and forget about little things (like paying me). Even though I would always take the time to explain closing costs when I was first retained, come closing day I usually heard some variation of “Golly, you’re expensive!” Yes, yes I am. Or was.
There may be some limited relief coming soon for first time homebuyers. Prime Minister Stephen Harper announced yesterday that, if re-elected, his government will introduce a tax credit covering up to $5,000 of closing costs. The details of what will be included as a “closing cost” have not yet been compiled, but it is expected that registration fees or transfer taxes, legal fees, and inspection costs will be included. There was no indication as to whether CMHC premiums will be included in this amount.
It’s too bad that this only applies to first time homebuyers- we could all use a tax break. And keep in mind this is a tax credit, not a deduction, meaning the value is only 15% of the eligible amount at tax time.
So what can you expect to have to pay on closing? It varies between provinces, but here’s an estimate of what closing costs you can expect in Newfoundland and Labrador:
- Legal Fees - This is the money that actually goes to the lawyer. The average in St. John’s is about $500-800; the least expensive lawyer I have seen charges just under $200, the most expensive was over $1,400.
- Registration of Deed - This is the fee charged by the provincial government to register your deed, and it uses a formula based on the value of the property- $100 for the first $500, plus $0.40 for each $100 of value beyond that. Basically, it’s $100 plus 0.4% of the value. On a $150,000 property, your fee would be about $700.
- Registration of Mortgage - This is calculated the same way as the cost to register your deed, but the value is that of the mortgage, not the property. Together with the deed registration, these are the biggest closing costs you’re likely to face. And they’re absolutely unavoidable!
- Title Search - Very few lawyers conduct their own title searches anymore, and almost all will pass along the fee they pay to have someone else do the search for them. This will generally cost you about $150-200.
- Law Society Transaction Levy - This $50 is paid to a fund to compensate people for lawyers gone bad.
- Copies, couriers, faxes, etc. - Most lawyers charge a set amount to cover these incidentals, usually in the range of $30-50. If you ask nicely, you can often get this waived :).
- Title Insurance - This is becoming increasingly common, but usually isn’t required. I’m not a fan of title insurance for most situations- it doesn’t solve underlying title problems, it only postpones them. If you need title insurance, it will cost about $150-200.
- Survey and Real Property Report - A survey measures and determines the boundaries of your property, while a real property report sets out where the buildings and structures are located relative to those boundaries. Both are required for mortgages, and should be obtained even when no mortgage is being given. A new survey and real property report will cost anywhere from $400-700, depending on the location and size of the property. If there’s a recent survey available you may not need to get a new one , and the cost of a new survey is often negotiated in the Agreement of Purchase and Sale. I suggest buyers try to make the vendors responsible for providing an acceptable survey, but 50/50 cost sharing may be a reasonable compromise.
- Home Inspection - A home inspection isn’t generally required, but many people feel it gives them peace of mind well worth the $300 or so charged by most certified inspectors. Some people think they’re useless- there is virtually no liability for even those most negligent of inspections, and the inspector doesn’t have any magic beyond his experience. If you’re reasonably handy and have a few hours, you can probably do an equally thorough inspection yourself. With that said, we had an inspection on our current house and will probably get one again on our next house.
- Taxes - There is no land transfer tax in this province, but HST is applicable to all closing costs except the registration fees.
For an average $150,000 house with a 95% mortgage, your total closing costs would work out to about $2,500, plus any fees for a survey or inspection. This doesn’t include CMHC fees, which can be another 2.75% of the purchase price, but this premium is usually rolled into the mortgage.
There are no easy ways around these fees, so it is important to understand exactly what you’re going to need to pay on closing day. It can often be difficult for your lawyer to give you an exact number needed to close any more than a few days before closing because of adjustments for oil, taxes, and other costs, but he or she should be able to give you a pretty good ballpark. If you‘ve got questions, ask, and if he can’t answer them, find someone who can.
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Very informative!
And I’m sure you were worth every penny.
I find it amusing that the buyer or seller has to pay $50 to fund the “bad lawyer” insurance plan.
It is the land transfer tax that catches everyone by surprise.
Although not a hard cost, most people forget that what your mortgage amount is and what is advanced are two different amounts. The mortgagee will deduct its fees (if applicable) and first month’s interest off the advance so the buyer has to make that up too.
It may be helpful to blog on what a statement of adjustments is on closing and how it impacts the purchaser as well.
Good post.
@Allison - I probably wasn’t worth my fee, but thanks for the vote of confidence :).
@ Mr. ToughMoneyLove - The $50 levy is a fairly new creature in this jurisdiction. It came about after a huge real estate scandal where lawyers weren’t ensuring that prior mortgages were being discharged. There were huge claims made and the Law Society (the local Bar) did a pretty big overhaul of practice standards. To pay for this mess up and to have a fund for future losses, a $50 levy per transaction was instituted. It seems ridiculous to me that clients now have to pay for the lawyers’ mistakes, but I’m in the minority on that.
@Thicken My Wallet - Great point about the adjustments on closing- I have seen more than one client caught short on closing as a result. I’ll be drafting a post on that shortly!
Interesting to hear about this from the other side!
As for the $5k credit - I really don’t understand why they are doing that - why?
Mike
I think the $5k tax credit is just a nice, relatively limited tax cut that plays well in an election. It lets the Conservatives pander to young people who are afraid they’ll never be able to afford a house and make it seem like they’re taking some action to assist. In reality, the absolute maximum anyone will save will be $750 at tax time- it’s nice to save that money, but it’s not likely to make a difference in anyone being able to afford a house.
With that said, I welcome any tax cut that I can find- I just wish it was for all homebuyers, not just first timers.
So if you pay a tax based on the value of the house, couldn’t you just do the sale for $1 to avoid it?
How do these fees differ if you’re buying a condo instead of a house? Specifically one that is still in development stages, and is therefore a brand new building?
@Atkin - Nice try :). The fee is based on the value of the property, not the cost, and you need to swear an affidavit regarding the likely value. Even in true transfers for $1 (such as within a family), the fee gets paid on the value.
@Andrea - The closing fees should be more or less the same for a condo, but you should check with a local lawyer to make sure. However, you will see some differences in closing adjustments, which I discuss in this article. You’re likely to have some adjustments for any extras or changes to the original plan (e.g. upgrading flooring, cabinets, etc.), as well as for the first instalment of your condo fees.