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December 9, 2011

Purchasing a home can be a very exciting and stressful time. Buyers, particularly first time buyers, need to be aware that there are a host of costs associated with buying a homeabove and beyond than the actual purchase price. It helps to know what those costs are in advance rather than get an unexpected surprise when closing that can add to an already stressful experience.

Agent’s Commission Your real estate agent receives a commission when you sell -- usually a percentage of the sale price -- as does the buyer’s agent. A typical total commission expense may be between 2.6 and 6% of the selling price, but rates are negotiable. Generally, this covers the commission for both the buyers' and sellers’ realtor, and the cost forboth is paid by the seller.

Closing Costs These costs generally refer to legal fees, property tax and utility adjustment costs and, in some provinces, land transfer taxes.  

Legal Fees The monies used to pay your lawyer for the legal transactions associated with the purchase of your home. Such transactions include: reviewing the terms of the offer, conducting a title search on the property, preparing and signing a mortgage, registering a new title, conveyance, obtaining relevant documentation and determining appropriate adjustment costs. 

There are many types of lawyers and it is prudent and in your best interest to hire a real estate lawyer or notary who specializes in home conveyance to handle your home/property purchase transaction. You should budget at least $800 to $1200, or more if you need documents to be drafted by your lawyer.

Property Taxes and Utility Adjustment In the sale of contract there will be an adjustment date (the day the buyer assumes all responsibility for paying property taxes, etc.) Usually, the adjustment date is the same day as the possession date. Likewise, any prepaid utilities, condo fees or assessments need to be reviewed. Your lawyer will work out exactly how much is owed and adjust as part of the conveyance or statement of adjustment.

Your Statement of Adjustment This document will show the net result for the purchase of the home, taking into account the purchase price, deposit, real estate commissions, legal fees, property purchase tax, property taxes and all other adjustments.

Land Transfer Tax  In some provinces this tax is levied when a property changes ownership. It varies with the purchase price of the property. In B.C. it's called theProperty Transfer Tax and there is an exemption available (on properties under a certain price point, plus other restrictions) to first time home buyers via The First Time Home Buyers Program.  

Other Costs Costs other than closing costs can include but are not limited to the following:

Property Survey Some banks require a survey in order to approve a mortgage on a house. This is undertaken to verify the location of a property's boundaries, measurements and structures and identify any easements, rights of way or encroachments on your or adjacent properties. Title insurance is often an alternative to a property survey. The fee for having a survey done depends on the size and particulars of the property but can cost upwards of $1000.

Title Insurance In lieu of a survey, many lenders will accept title insurance, which basically insures the title of the property against any disagreement about property lines, or even against fraud. The cost of the insurance usually depends on the size and /or value of the property. Your mortgage broker or lender can provide you with the details.

Interest Adjustments This covers any interest accrued between the closing date of the purchase and the first regular payment date of the mortgage.

GST/HST-GST and sales taxes This will depend on the type of property being purchased and the province or territory you live in. Always ask if either or both of these taxes apply before signing an offer to purchase. Likewise, expect that real estate agents, lawyers, appraisers, building inspectors, surveyors, and anyone else you hire to help you sell your home will charge GST or HST on top of their service fees.

Home Inspection It is a good idea to have an inspection done before completing the purchase to evaluate the structural and mechanical condition of the property. This can save you lots of money in future repairs, determine the sale price and if you even want to purchase the home/property. On average home inspectors charge approximately $100/ hour.  The amount of hours it takes to inspect a property depends upon size and age. A condo could take a few hours, whereas an older larger house could take upwards of six hours.   

Appraisal Fees  Often purchasers want to ensure they are paying a reasonable market price for the home they are purchasing. You may want to condition your offer subject to a satisfactory appraisal by a member of the Appraisal Institute of Canada. Appraisal fees are based on the type of home and can run between $300 and $500.

Mortgage Life Insurance Special insurance coverage to cover the cost of discharging your mortgage in the event of death or severe illness.  It is available from most lenders and sometimes is a condition of your mortgage.  

Home Owners Insurance As soon as you have an accepted offer on any property, make sure you can arrange homeowners insurance including personal liability and Named-Perils (fire, theft, water damage). Often, depending on the type of property you are purchasing, this is a condition that would have to be met in order for the deal to become firm. Some properties, including those that may have formerly housed marijuana grow operations, may not qualify for standard insurance without meeting certain conditions, or undergoing remediation. Find out BEFORE you remove subjects.

Service Charges Fees and installation charges to hook up utilities such as electricity, gas, telephone and cable services (which you would also be familiar if you previously rented).

Moving Costs Though it may sound obvious, purchasers sometimes do not consider moving expenses a cost of buying a home. Moving costs will depend and vary based on the distance of the move, the amount of furniture and goods to be transported and the time of year/month in which you are moving. Get several movers in to give you an estimate before choosing one. Friends rarely help friends move!  Also take into consideration the time and effort it takes to pack up your present home. Do you plan on hiring people to pack on your behalf? If not, you need to factor your time into the equation.

Appliances Be careful in your deal that you check to see whether the appliances are included in the purchase agreement. If not, you will need to go out and buy them.

Landscaping, Fencing, Decks, Etc. If purchasing a newly constructed home, keep in mind that there will likely be a need to landscape and fence the yard in the first year or two. If purchasing an older property, maintenance is something to factor into your equation.

Annual Maintenance Homes, like other possessions, require care and maintenance to maintain their value. You need to plan for future painting, and replacement items like roof shingles, appliances and furnaces, depending on the age of the home you are buying.

Other incidentals include an alarm system, re-keying locks, acclimatizing your pets.

Nothing can be more stressful than buying a home and trying to move when you are strapped for cash. Selling your home is also an expensive endeavour. You also need to take into consideration that you are also spending a good deal of your time in the process. The phrase "Time is money” certainly applies!  Remember, anything you pass off to someone else will cost you money; anything you don’t will cost you time.




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