Concierge - Legal

KEN HOYT

COSTS OF A RESIDENTIAL REAL ESTATE TRANSACTION - PURCHASE

To state the obvious, when a person buys or sells a home, there are various expenses involved. The following summary will hopefully give one a better understanding of the expenses which are usually applicable in the purchase of a single family residence in an effort to avoid unnecessary financial surprises.

Disbursements

The lawyer's role in the purchase of a property is to certify to the Buyer that:

(1) there is good and marketable title to the property, free from all liens and encumbrances;

(2) the location of the structures on the lot (i.e. buildings such as house, garage, additions, deck) comply with applicable zoning by-laws; and

(3) no property tax or water arrears exist.

In order for the lawyer to certify the above, numerous enquiries and searches are required. The cost of the enquiries varies depending upon the municipality in which the property is located. Examples of these disbursements are:

In addition, there are also registration costs and fees such as:

Law Society of Upper Canada transaction levy surcharge	$53.50
Registration of Deed	$70.70
Registration of Restrictive Covenants (new home only)	$70.70
Registration of mortgage	$70.70
Miscellaneous disbursements (such as couriers, long distance, postage, photocopies ...etc.)	$75.00

In summary, disbursements on a purchase vary anywhere from $650.00 (purchase of condominium) to $700.00. Furthermore, the purchase of an out-of-town property or newly-built home could increase disbursements by another $150.00 to $250.00.

Land Transfer Tax

This tax is collected by the Government of Ontario and must be paid by anyone who purchases land in Ontario. The tax is paid on the closing date of the purchase and is based on the amount the Buyer pays for the property.

The following rates apply for a single family residence:

Amounts up to and including $55,000.00	0.5%
Amounts exceeding $55,000.00, up to and including $250,000.00	1%
Amounts exceeding $250,000.00	1.5%
Amounts exceeding $400,000.00	2%

For any purchase up to $250,000.00, the easiest way to calculate the tax is to multiply the purchase price by 1% and deduct $275.00. For example, if the purchase price is $175,000, the Land Transfer Tax would be ($175,000.00 x 1%) - $275.00 = $1,475.00.

For first-time homebuyers purchasing a newly-built home, the Ontario Government has seen fit to exempt Land Transfer Tax up to a maximum of $2,000.00 (this is a purchase price of $227,500.00).

Adjustments

The Agreement of Purchase and Sale provides that fuel, rent, taxes and local improvements will be apportioned and allowed to the date of closing. In the case of property taxes, for example, if a Seller paid property taxes of $2,400.00 in full for the entire calendar year and the transaction closed on September 30, the Buyer would pay an extra $600.00 on closing to reimburse the Seller.

If the property is heated by oil, the Buyer pays for a full tank of oil on closing, the approximate cost of which is $450-$550 depending upon the price of oil.

Miscellaneous Costs

1. Survey:
   

   
   The survey shows the location of the building on the lot. It is required by the Buyer's bank or financial institution in order to determine that the building's location complies with the appropriate zoning by-laws and that no serious encroachments exist. Usually the Seller has an existing survey and makes it available to the Buyer. Most financial institutions will accept an existing survey if it accurately depicts the location of the buildings on the lot. If the survey is out of date, it is the responsibility of the Buyers (unless the Agreement provides otherwise) to obtain a new survey prior to closing, the approximate cost of which is $950.00.
   

   
   A less expensive alternative to obtaining a new survey which is acceptable to most financial institutions is a product called title insurance. The cost of title insurance to the Buyer is a one time fee of $270.00 and is arranged for by the Buyer's lawyer. This insurance policy insures both the lender and Buyer against any actual losses suffered by the lender or Buyer as a consequence of it being determined at some future date that the house and other structures in existence at the time of purchase are improperly located on the lot.
   

   
   

2. CMHC Insurance
   

   
   If the Buyer's mortgage is a high ratio mortgage (i.e. greater than 75% of the appraised value of the property) the mortgage must be CMHC insured. There are additional costs associated with a CMHC insured mortgage such as:

   • CMHC application fee of $165.00
   • Provincial Sales Tax of 8% is charged on the CMHC insurance premium. The CMHC insurance premium itself may be added to the principal amount of the mortgage; however, the PST must be paid on closing
     

     
     

3. Conventional mortgages
   

   
   A conventional mortgage is a mortgage for 75% or less of the appraised value and does not have to be CMHC insured. Some banks, however, do charge a processing or appraisal fee of $150.00 to $200.00 to process a conventional mortgage.
   

   
   

4. Newly-built Homes
   

   
   The standard Agreement of Purchase and Sale used by most builders of new homes may contain various additional costs to be borne by the Buyer such as:

   • preparation of the Transfer (Deed) - $125.00 to $150.00
   • enrolment of the home in the Ontario New Home Warranty Program. This cost is based on the purchase price and typically ranges anywhere between $500.00 and $650.00.
     

     
     

5. Legal Fees
   

   
   Legal fees vary from lawyer to lawyer. Usually it is a function of how efficient the law firm is in handling real estate matters and the kind of service the lawyer provides.
   

   
   My legal fees for a residential real estate transaction (not including G.S.T.) are $650.00.

QUESTIONS ASKED MOST FREQUENTLY BY PURCHASERS

Q1: When and where does the Buyer pick up the keys? A1: Keys are picked up from the Buyer's lawyer on the day of closing. In some cases, the key may be available earlier on in the afternoon and, should this be the case, the Buyer is contacted. Please note that there are no guarantees to provide keys at any time prior to 5:00 p.m. on the day of closing.

Q2: When should the Buyer book the movers? A2: Movers are usually paid on an hourly basis. Consequently, I recommend that you book your movers for early afternoon say 1:00 p.m. or 2:00 p.m. Assuming it takes your movers 2 to 3 hours to load your belongings, this puts us at about 4:00 p.m. when you need your keys. Chances are the keys will be available but, again, no guarantees until 5:00 p.m.

Q3: When does the Buyer know how much money will be needed in order to close the transaction? A3: It is usually 3 or 4 days prior to the closing date before the exact amount of money required has been calculated. At this point, you are contacted and told the amount and an appointment is made, usually for the day before closing to sign the documentation. Keep in mind; however, that I would have met with you at the very beginning and provided you with a very close estimation of what you should expect so there would be no unnecessary surprises.

Q4: How does the Buyer make their money payable and in what form must the money be? A4: The money must be in the form of a certified cheque or bank draft made payable to the law firm, in trust.

Q5: Who needs to be there to sign all the documents and how long does it take? A5: The meeting takes about 45 minutes to sign all the documents. Anyone who is going on title to the property or, in some cases, a person not going on title but guaranteeing the mortgage would have to be present for that meeting.

Q6: What if a person who needs to attend the meeting referred to in Question 5 is out-of-town? A6: The documents can be sent by courier to the out-of-town person. In some cases that person would have to meet with a lawyer practicing in the area where they are signing. Alternatively, Power of Attorney documents can be prepared and signed authorizing an individual who is not out-of-town to sign on that person's behalf. There are additional legal fees and disbursements associated with this option.

Q7: Can a sale and purchase be closed on the same day? A7: This is certainly achievable assuming both transactions are in the same area (i.e. within the City of Ottawa). If, on the other hand, the sale is in Toronto and the purchase is in Ottawa, things can be problematic. The biggest problem is arranging for the timely transfer of funds from the lawyer in Toronto once the sale has been concluded. Sometimes, wire transfers or direct deposits have complications and delays. I am not saying it's impossible but, in this case, if your purchase could be 1 day later it would make life a lot easier.

Q8: Can a Buyer ask the Seller to give them a key prior to the closing date so they can move some of their belongings in? A8: Nothing prevents a Buyer from asking the Seller for a key in advance; however, if the Seller consults his or her lawyer, the answer will probably be "NO".

 

Q9: Does a Buyer have the right to inspect the house just prior to closing even if the Agreement does not provide for such an inspection? A9: This answer has a legal and practical side to it. Legally speaking, there is a case where a Judge decided a Buyer has the right to pre-inspect. There are lawyers, however, who will argue the case has limitations and does not apply as a general rule. Practically speaking, it doesn't matter, in most cases, what the legal answer is. If the Seller does not want to allow the inspection and the Seller's lawyer is in agreement, there will not be sufficient time before closing and no Buyer will want to spend the money to determine what the law is. Buyers, can always sue the Seller after closing if something is missing or damage to the premises has occurred.

A FINAL NOTE: LEGAL FEES AND SERVICE

When selecting a lawyer, a Seller or Buyer should not necessarily make their selection based solely on which lawyer quotes the lowest fee. Real estate is an area of law where service matters and the manner in which your lawyer completes your sale or purchase will have a direct impact on your state of mind. I firmly believe that the more information a Seller or Buyer has shortly after the agreement firms up and all conditions are removed is essential in making the process problem free and in avoiding unnecessary surprises. Consequently, as part of the service I provide at no additional cost to you is a meeting at my office once your deal is unconditional. This meeting is 30-40 minutes in length during which I will calculate all of the financial costs of your particular transaction as well as provide you with a detailed list of all the things you must know and do to prepare yourself for closing.

Before selecting a lawyer, a Seller or Buyer would be well advised to satisfy himself or herself as to the following:

1. Most importantly, is the lawyer intending to meet with you at the very outset of the transaction in order to finalize all costs and explain the process?
   

   
   

2. Did the lawyer return your initial call promptly to discuss the transaction? Was the lawyer informative or vague? Was the lawyer personable? Would you enjoy dealing with this person?
   

   
   

3. Will the lawyer be meeting with you personally at the time of closing to explain the documentation and have it signed or will it fall to staff members to fulfill this function?
   

   
   

4. How long has the lawyer been in practice? Is real estate an area of law that the lawyer concentrates in?