PETE COOLIO REAL ESTATE
THE CLOSING COSTS & CLOSING DATES
It's pretty straight forward to count up your available cash when purchasing a home, but remember that all of the cash you have at hand might not be available for your down payment, because there are closing costs, too. There are taxes, legal fees, appraisal fees, moving expenses, and home insurance to consider before you are finally in your new home, and although all of these costs might not pertain to your situation, the tally can still blow your budget out of the water if you're caught unaware.
The time to budget for those “end” expenses is now. Leaving yourself with some breathing room will pay big dividends when it comes to enjoying the experience of buying a new property.
CONTACT me with your questions
Property Transfer Tax - (Click here for more details)
The British Columbia Provincial Government imposes a property transfer tax, which must be paid before any home can be legally transferred to a new owner. Click here for more details, as there are many. This is a Land Transfer Tax paid by the buyer when the title is registered with the LTSA (Land Title & Survey Authority). Title Registration will occur on the Completion Date and it has to be completed before you get your keys.
Some buyers may be exempt from this tax. For further information, click the link in the above paragraph or visit the Property Transfer Tax Website at:
Goods & Services Tax – If you purchase a newly constructed home, you may be subject to GST on the purchase price. There may be some rebates available depending on the value of the home. For further information, contact the Canada Revenue Agency at www.cra-arc.gc.ca.
Generally speaking, GST is also applied to the Real Estate Broker’s commission. Generally speaking, it’s not deductible, but generally speaking, it might be included in the costs of selling a home in a Capital Gains scenario. “Generally Speaking”? Sorry… this is lawyer stuff, so you’ll most definitely be bringing it up with your lawyer.
If the property you’re buying is re-sold residential, then you can likely stop reading now! You shouldn’t be required to pay GST. BUT… if the property has been substantially renovated, had been previously acquired for/and used as more than 50% rental, or if input tax credits have been applied by the previous owner, then you could have to pay some GST after all. There may also be rebates available.
Addtional notes: there’s no GST on most Strata fees.
Property Tax – If the current owners have already paid the full year’s property taxes to the municipality, you will have to reimburse them for your share of the year’s taxes. There's a simple formula for this, so you shouldn't have to expect any surprises. If not already paid, your tax bill will be coming due in the summer
months. As the taxes are available from BC Assessment, there should be no surprises here, either.
Appraisal Fee – When the lending institution requires an appraisal of the home before approving your loan, it may be your responsibility to pay the appraiser’s fee.
Survey Fee – The lending institution may also require that a survey certificate be presented to them. The purpose of the survey is to formally establish the boundaries of the property and to ensure that all buildings are within those boundaries.
Note: Lending institutions may ask for either a building location survey, which establishes where a building is located on a property, or a monumental survey, which establishes the actual boundaries of a property. If the current owner cannot
provide a recent survey certificate, it will be your responsibility to pay the surveyor’s fee.
Mortgage Application Fee – Lending institutions may charge a mortgage application fee. This application fee may vary between lending institutions.
Independent Legal Advice - There are qualified professionals out there with the answers you need. Although your Realtor may have some of the answers, he or she is NOT permitted to give you legal advise. This must come from a legal professional. Do not rely upon a well-intentioned neighbour or friend to provide it to you. This guarantees that your needs will be met accurately and professionally, and that you will be able to rely upon the advise you've been given in the event of any legal issues which may arise in the future. Your Realtor will advise you to consult a legal professional where it is appropriate or necessary.
DON'T FORGET ABOUT THE INCIDENTAL COSTS
Mortgage Default Insurance – This type of insurance is required on most mortgage loans in excess of 75% of the appraised home value. Its purpose is to ensure that the lender will not lose any money if you cannot make your mortgage payments and the value of your home is not sufficient to repay your mortgage debt. The insurance premium is paid to the lender and in most cases, is added to the loan amount and paid for over the term of the loan.
Life & Disability Mortgage Insurance – At your option, you may purchase insurance which will ensure that your outstanding mortgage balance is paid if you die or become disabled.
Fire & Liability Insurance – The mortgage lender will insist that you purchase an insurance policy which guarantees that, in the event of fire, the lender will receive the balance owing on the mortgage loan before you receive any insurance proceeds.
Real Estate & Transaction Related Legal Fees – The transfer of home ownership from the seller to the buyer must be recorded in the Land Title and Survey Authority Office in order to protect the new owner’s interests. You will probably want to engage a lawyer or notary public to act on your behalf during the completion of your purchase. The lawyer or notary public will charge a fee for this service, plus disbursements, including the Land Title Registration fee. If you are financing your purchase with a new mortgage loan, there will be a further fee and disbursements to
prepare and register the mortgage documents. We can refer you to qualified professionals to help you.
OTHER LAST MINUTE COSTS...
Also have money set aside for the following:
• home inspection fees: you must pay your home-inspector after the home inspection. Just like a visit from the pizza guy, this is an external part of the deal and is not included in your financing.
• moving expenses
• deposits required by utility companies
• household goods
• kitchen appliances
• garden equipment
• garbage cans, tools, window coverings, etc.
• redecorating or renovations
• Neighbourhood or association fees, if applicable
• Clubhouse or other membership fees
• Additional parking fees or RV parking
• Temporary storage while moving and getting settled
• A few bottles of wine to share with your new neighbours!
CLOSING, POSSESSION & COMPLETION DATES
This is the date we close the transaction and title will transfer from the seller to the buyer.
FUNDS are transferred this day. The seller should always consider the time it’s going to take to move and clean before choosing a date that works.
This is the date parties agree to make adjustments to the costs they have to share: property taxes, strata fees, utility payments, etc. Deposits, (explained below) are part of the adjustments, ie. the amount the buyer has left to pay.
This is the date the buyer will get the keys and officially move in. Often, the possession date is the day following the completion date, which allows time for the transaction to close. Noon is pretty common. Making completion & possession on the same day can cause problems…
if the funds haven’t transferred yet, the buyer just might be sitting in the driveway until 5pm with their moving van until they do.
Sellers, choose a date that will let you finish your cleaning and moving in time!
The date that the buyer is to deliver the deposit is stipulated in the Contract of Purchase & Sale. 5% of the purchase price can be common in busy markets and major cities, but it can be less or more… it’s only intended to give the seller confidence in the buyer’s intentions. There is no requirement for a deposit, but not providing one, or offering one that’s very small can make sellers wonder if your finances are risky, or if you’re hoping for an easy way out of the transaction somewhere down the road. Sometimes, the sale is dependent on other factors or subjects, which can render the deposit a little less meaningful. Entry level buyers may have more tenuous finances, so their only choice may be to leave as many doors open as possible in the event that something goes wrong. Life happens, but you can’t let it ruin you.
In a tough market, many buyers must sell their own homes before they can close the deal with the seller, so deposits can be smaller, or they can be offered after the final subject has been removed. This is often acceptable because the seller isn’t missing out on too many other opportunities in the event that the deal goes south. In a busy market, the deposit is often requested upon acceptance of the offer, as the seller would likely be losing out on many opportunities to sell their home in the event that the buyer walks away. Fair enough, the buyer in this transaction would likely have an easier time selling their home, as well. The risk is arguably very small, and the deposit expresses security and good intentions on both sides. In this case, offering a larger deposit that your competitor just might tip the balance in your favour… it suggests that you’re more confident that the deal with go through. The Deposit can be due within 24 hours of acceptance BUT it can also be due within 24 hours of the final subject being removed.
Here’s the official explanation…
Section 27 of RESA (Real Estate Services Act) requires that all money received by a licensee from, for, or on behalf of a principal in relation to real estate services, and all money received on account of remuneration including remuneration received from another brokerage, must be promptly paid or delivered to the brokerage. Section 27 of RESA requires the brokerage to promptly pay all such funds into a brokerage trust account.
Once the deposit is in the brokerage trust account, it’s locked in until both parties are happy.
The deposit becomes part of your adjustments, and it’s a part of the price the buyer will pay the seller for the home. The passage above basically says that you’ll give your money to your agent, and your agent will promptly hand the money over to his/her brokerage. Past this point, assuming that there aren’t any legal issues, the deposit can only be released if both parties are in agreement.
Is a deposit really necessary?
It’s certainly customary, but not legally required. It depends on how much faith you have in the transaction. If the seller doesn’t have a lot of faith in the buyer, then a deposit upon acceptance would surely be requested. If the buyer isn’t certain that they’ll be able to sell their own home before buying the seller’s home, then demanding a deposit before they know that their home is sold just might force them to walk away from their offer.
This is why it’s important to have a Realtor who engages in the process on your behalf. A good Realtor will be able to balance the risks and keep everybody in touch. Negotiating isn’t all about price… it’s about bringing buyers & sellers together to create an agreement that can work. This can be a delicate process, and the needs of buyers and sellers have to be fairly balanced. If you fancy yourself a hard negotiator, you should consider that this isn’t like beating up on a car salesman for a better deal. Buying & Selling a home is about changing people’s lives, their finances, the lives of their kids, friends, relatives, their foundations. The best deal is the one that doesn’t fall apart, and despite good intentions, a bump in the road can often force a great deal to fall apart anyway.
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THE CLOSING COSTS