What are closing costs?
Closing costs are the fees, taxes and other expenses you will pay as part of the purchase of your new home.
Closing costs vary, depending on the property you are buying. This article sets out some of the common closing costs you should be aware of, and prepare for, when buying property in British Columbia.
We have a “buyer beware” system in British Columbia – it is always up to the buyer to ensure that they are doing an appropriate amount of “due diligence” when buying a property. The amount of that due diligence you need to do will affect the extent of your closing costs.
When you buy a home, we will set up a signing meeting with you. At that meeting, we will go through the legal paperwork with you, and we will go through a financial statement with you that sets out all of these costs.
Once you have approved that financial statement (called a “Statement of Adjustments”), then you will know how much money you need to bring us to complete the purchase.
There are a wide range of taxes to consider in every home purchase.
Property Transfer Taxes
Property Transfer Tax is a provincial tax paid by a buyer at the time the property is transferred into their names. The tax is calculated by a formula.
Property transfer tax can be a significant cost, depending on the size and location of the property, whether you are a citizen or permanent resident of Canada, and the value of the property.
There are some exemptions for property transfer tax, such as transmitting property into the name of a surviving joint tenant, or first time home-buyers, or buying new property.
We will let you know the amount of the property transfer tax you have to pay when you come to your signing meeting.
Municipal Property Taxes
Each year, the municipality where the property is located will issue you a tax bill – that tax bill is an annual amount, and covers the whole calendar year (January to December). That property tax bill is issued in and due during the middle of the year (June or July for most municipalities).
If you are going to be living in the property as your principal residence, you might be eligible for a Home Owner’s Grant, which will reduce the amount of the property tax bill. If you are eligible, you need to apply for that grant each year.
It’s traditional to share the property taxes between the buyer and the seller, since neither will own the property for the full year. We will get a copy of the tax certificate for you, then work out who will be paying the property taxes for the year, and how those taxes should be shared. You will see that amount on your statement of adjustments.
Whenever you buy a property, we need to consider whether you will be paying GST on top of the purchase price. Sometimes GST is set out explicitly in contracts, and sometimes it is not. Sellers generally make a declaration confirming whether GST is payable or not, but it is still up to the buyer to ensure that they are considering whether they should pay GST.
If the seller refuses to declare whether the transaction is exempt from GST or not, and your contract isn’t clear about whether GST is applicable, we recommend you speak with an accountant who can take a look at the entire situation and give you an opinion.
It is important not to guess, or to assume, what should happen with respect to GST, as there are several unexpected things which could make a transaction subject to GST when you thought it wasn’t.
PST might be payable if you are buying things like furniture, equipment, or other moveable items in addition to the property itself. If that is happening, please let us know that as soon as possible.
There are several kinds of insurance that you might have to deal with when buying a property.
Property insurance is intended to help pay for various losses or damages to your property, such as fires or floods. It is important to understand the extent of the property insurance coverage you have, especially if you have a lender.
In fact, most lenders require property insurance before they will fund your mortgage or line of credit.
If you are buying a strata property, then you will still want to make sure you have property insurance in place, even though the strata will ensure that the buildings as a whole are insured. Your insurer can help you determine how to properly dovetail your property insurance to the strata’s insurance.
It protects against various legal issues like zoning problems, encroachments or registration issues. This insurance is often required by lenders to cover their interests in the property. You can buy your own owner’s policy to protect yourself against these issues.
Title insurance is usually purchased at the same time you buy your property (we arrange that for you), and the policy usually lasts until you refinance or sell the property.
The cost for title insurance varies depending on the kind of property (strata versus single home versus First Nations). It is not possible to get title insurance for manufactured homes.
If you are buying a strata property, there will likely be two kinds of additional closing costs to consider: strata fees and the cost for the strata documents required for the land title office and your lender.
We will make an entry on your statement of adjustments for the monthly strata fees.
Certain documents must be ordered by us from your strata management which are required by the Land Title Office and by any lender you might be using. The cost for these documents varies depending on who is managing your strata, and when your closing date is.
It is not possible to use documents you might have already obtained from other sources – we must provide opinions and certifications on the information in those documents, so we need to order them from the source.
There are a number of searches that we will order for you.
Property Tax Certificate
A property tax certificate shows any outstanding municipal tax amounts for the property, or any credits sitting with the property. We use the information in this certificate to prove to your lender that there are no outstanding taxes. The cost for a property tax certificate varies from $15 to $60, depending on the location of the property.
It’s important to know who provides public utilities services to your property, such as water, sewer, garbage or recycling. Sometimes those services are provided by the municipality, and the costs for those utilities are shown on the tax certificate. Sometimes they are not provided by the municipality, and we must order additional certificates from other public utilities companies.
Depending on where your property is located, that might mean we order no utilities certificates, or multiple utilities certificates. These certificates can range in cost from free up to $100 or more for multiple providers.
It’s important to make sure we are buying you the right property, so we will order a copy of the plan from the Land Title Office, and have you review that plan with us, to identify your property.
Most plans are easily obtainable at the Land Title Office, but some older plans might not be scanned in yet, and there would be an additional cost to obtain those plans. Plans range from about $20 to $100 or more, depending on whether they have been scanned in at the Land Title Office.
If you are getting title insurance, it is not common to also get a survey, but you might wish to have one nonetheless. Surveys can help point out potential issues before you buy the property.
Survey costs vary, depending on the size and location of the property. Rural properties are more expensive.
There are several different kinds of appraisals which your lender or you might wish to have.
The costs for appraisals vary depending on who is arranging them – if your lender is arranging the appraisal, they might do that for free (if they are doing what they sometimes call a “desk” appraisal, where no one actually goes out to the property), or they might charge you, if they have to send someone out to the property.
The cost for appraisals can also vary depending on the purpose for the appraisal – if you want a particularly thorough appraisal, or if you want an appraisal to address a specific issue, then the appraiser will likely charge more for that additional work.
The cost can also vary depending on the location of the property – it will cost more to do an appraisal on a rural property, rather than an urban property, since the appraiser will have to travel, and it will be more difficult to find comparable properties.
A home inspection looks at a number of issues which might affect the usability or safety of your property.
It’s important to be clear with your home inspector what you want them to take a look at. For example, if you want your home inspector to inspect your wood-burning fireplace, they might need to bring in a specialist for that work.
Tags: buying a home, closing costs, real property