Buyer’s Closing Costs

A common misconception when buying Real Estate is that it costs the buyer nothing. While it’s true the Seller typically pays the commissions, buyers should be aware that they will have other costs besides the down payment. These are called the closings costs. Items to consider are:

1. Property Inspection: It’s advised to inspect a property before finalizing any deal. An inspection will make you aware of the general condition of the property, to help you make an informed decision. It is not a guarantee. An inspection will cost approx. $400 depending on the square footage.

2. Property Appraisal: Generally required by the lender. It’s designed to protect the bank from over lending, as well as protecting the borrower from over paying. An appraisal will cost approx. $200.

3. Survey Certificate: Generally required by the lender. A survey will confirm that the house and/or garage, pool, fence, etc…do not encroach or cross over the property lines. A survey will cost approx. $250.

4. CMHC Application Fee: A $75 fee. I can’t call it much more than a convenience fee.

5. CMHC Insurance: Any purchase with less than 20% down (new April/2007) will have an insurance fee based on the entire purchase price tacked on top. A simple example would be a $100,000 purchase with 5% down ($5000) $95,000 x 3.25% = $3088. $95,000 + $3088 = $98,088 (Mortgage)

6. Legal Fees: A Lawyer or Notary will coordinate the transfer of money and title. Filing the required documents with the Land Title office. Expect to pay approx. $750-$1000.

7. Property Transfer Tax: This tax is payable on the purchase of property. The calculation is based on 1% of the purchase price up to $200,000 and 2% of any amount above $200,000. Most first time buyers are exempt from this if they meet certain criteria. The main criteria are; a) borrower has never owned a principal residence anywhere; b) maximum purchase price of $375,000.

8. Balance of Property Tax: Generally, property taxes for the calendar year are paid at the beginning of July for the full calendar year. The Buyer will owe the remaining tax for the year.

9. GST on New Property: New home buyers are subject to GST on their purchase, which will vary from 4.48% to 6%. The variation is determined by the price of your new home. If it is under $350,000 and is self-occupied the GST is 4.48%. If the price is over $350,000 a sliding scale is used to determine GST up to 6% at $450,000. Investors are subject to 6% GST at any price.

These are only some of the costs to be aware of. It is important to confirm your closing costs with your lender & later with your conveyancer to ensure there are no surprises. Your Realtor will make you aware of the fees, and give you a rough estimate, but when it comes right down to it. The lender and the conveyancer are charging you the fees, so they should make you aware of all the costs involved. Something else to keep in mind is that some banks waive fees when they know there is competition.

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20 Comments

Filed under Aaron Best, Investment Approach

20 responses to “Buyer’s Closing Costs

  1. Pingback: Buyer’s Closing Costs | First Finance Loans and Mortgages

  2. BlacknBrownOut

    A couple of other things:

    – Like property taxes, the balance of city-managed utility charge will be due, e.g., water and sewage here in Burnaby.
    – Given how much is being risked, title insurance should always be a serious consideration for a buyer.

  3. mike

    oh come on, the buyer pays the commission. The money never even HITS the sellers bank account.

    It goes

    buyer -> lawyer -> realtor

    The buyer is paying the commission. I just hate it when realtors say they aren’t.

  4. tqn

    you can say both way if you prefer whether the buyer or seller pays the commission.
    buyer pays commission i.e commission already accounted for and included in the sale price.
    seller pays commission i.e the seller desired what price he would want to get for his property and pay the commission to the realtor a % or fix fee from the proceed of sale.
    I got no problem of saying either way. It all depends on how much you get after all expenses.

    Can you elaborate about the title insurance? I dunno much about it. TIA

  5. robchipman

    blacknbrownout:

    You’re correct about the extra taxes for utilities. Depending on what municipality you’re in they may be charged with the property tax, or charged seperately.

    Mike:

    Whoa, big fella! You’re bringing up an interesting, but completely different subject, and I think you’re going to far in the opposite direction. Its an old story: the seller pays the commission, but he pays it with money the buyer gives him. The solution is to think of the commission as “transcaction driven” rather than paid by either party exclusively. Good fodder for a future post.

  6. Rob, thanks for the good summary of closing costs. Very timely for me.

  7. bakakuse

    What’s a downpayment?

  8. robchipman

    realestute:

    Thanks, but thank Aaron – his post.

    bakakuse:

    A downpayment is cash you save up to put toward a property purchase. It’s not a closing cost. If you don’t have one my advice is to keep saving one. If the bears are right you’ll be able to use it advantageously before too long. If they’re wrong, you’ll still be able to use it to build some lasting wealth.

  9. Booom is Over

    ” If the bears are right you’ll be able to use it advantageously before too long. If they’re wrong, you’ll still be able to use it to build some lasting wealth.”

    If the bears are right? Good one Rob. It’s over ; the boom has turned to bust.

    And you said all along, you would see the signs!

  10. Jim

    The average new home owner incures $20,000 in addittional debt shorlty after moving into their new home.For umplanned purchases such as: fences,landscaping,painting furniture ,repairs, etc. according to CIBC.

  11. robchipman

    Boom….:

    Thanks for making sure the party line is toed, and that nobody recognizes that there might be another side to a debate.

    Its also important, of course, that if anyone does in fact acknowledges that there are two sides (witness Skeptic vs. Domus, for example) that anyone recognizing the obvious be reminded that there is only one side to any debate. Its not enough that one side in a debate may be wrong. What’s important is that their very existence be denied.

    Thanks also for making sure we don’t let facts interfere with a good argument. That’s very important.

    On a serious note…

    Jim:

    Good point. While I’d doubt that you’ll spend $20,000 on a condo purchase, I know from personal experience that soon after taking possession of a new house your Saturdays seem to include an awful lot of visits to the nursery for plants, and to the building supply place for all kinds of improvements.

    I have to wonder: is this good, as a spur to the economy? Is it as big here as it might be nationwide, due to affordability concerns? Does not some of the extra $20,000 add value to the property? And have you ever spent that kind of money immediately after buying one of your investments (aside from ones bought with upgrade as an integral part of the plan)?

    I haven’t spent anything close to that on my investments, and generally don’t do so for my investor clients, but I would say its a common event for owner occupiers.

  12. M-

    RE: Who pays the commission?
    In a flat market, if you bought your house for $199K, you’ll sell it for $199K, less the realtor’s commission. It’s money the seller doesn’t receive– not money the buyer shouldn’t have paid.

    The seller negotiates the commission with their realtor, so it is completely out of the buyer’s control.

    When I sold my place a month ago, I wanted an expert salesperson representing my interests. Yes, the commission was expensive, but I believe that I received good value for my money. Not “good value” as in spending-lots-of-labour-on-my-property, but rather “good value” in terms of selling my place quickly and for an excellent price.

    I could have gone the for-sale-by-owner route, but I’m really not much of a salesman. I could have chosen a cheaper realtor, but I didn’t feel confident with them. Not because they were cheap, but because the 1% realtor seemed to be after a quick sale more than a high net-of-commissions-price.

    I firmly believe that commissions are paid for by the seller.

  13. Jim

    Rob: My last 3 purchases required some heavy renos. $80k,$100k, and $90K. But the big one ($100k Westside) you know about, I sold pretty quick. The other is a hugely positive cash flow, you also know about (on the island), and the 3rd is in Calgary. The rest were dumped in September and will be replaced in the next 36 months. I wouldn’t say I am a flipper, or a bear, but I do ascribe to the motto: “better to sell a year early than a day late”.

  14. robchipman

    Jim:

    All things being equal, etc., if you’re going to time the market I think that your motto is pretty useful. Not bad!

  15. blueskies

    OK I know what a down payment is.
    but what is a “boom”?

  16. “oh come on, the buyer pays the commission”

    Not necessarily. I sold an estate property after having it appraised. The buyer also had it appraised, and was not willing to pay more than the appraised value (understandably). The commission came out of the sale price, so the seller (estate) paid it in that case. Mind you, the property was not in BC, and the area that it is in was not a “hot” market. I held out for the appraised value (240k), and paid abt. $6k in commission.

    I have an academic question about the CMHC insurance – Is that a one-time premium?, or is it per annum? The question is academic because I would not really consider buying with less than 25%, or better, down.

    “I have to wonder: is this good, as a spur to the economy?”

    I’m sure that it is (a spur). The global real estate boom has a lot to do with the “hot” economies. Is it good? Hmm. The jury is still out in my mind, because this is all debt-driven, and when the collections guys start asking for their money, and everyone is laid off because of recession (or worse), things will be nasty for Jack and Jill McAverage, with their over-extensions to deal with.

    I believe (from beneath my titanium/zinc/silica helmet) that we are in store for a global depression.

    The big boys know when to take their profits. Right Jim?

  17. Edit – that was $6k commission that my agent got. The buying agent got another $6k, of course.

  18. aaronbest

    “I have an academic question about the CMHC insurance – Is that a one-time premium?, or is it per annum?”

    It is a one time premium.

  19. I've placed my bet

    Soli:

    The big boys know when to take their profits. Right Jim?

    Not always, remember in the early 80’s some high profile types got crushed pretty good.
    Skalbania comes to mind, I may not have the right spelling, but I am sure Rob would know to whom I am referring.
    Furthermore many of the developers are not at the table with their own chips, and the way the risk calculation works out it makes sense for them to stay in the game, until the bubble blows up.
    Nobody can know with exact precision when that will be.

    (It’s close; see how the junk is starting to pile up)

  20. robchipman

    Nicely done, place my bet. See the dif?

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