Closing Costs
When property is purchased in Canada, there are other costs related to the transaction beyond the purchase price. Not all costs may apply in all circumstances, but are listed here for information and to help you plan for these costs. The mortgage experts at Gibbard Hoffart Financial Group and your legal advisor can help you figure out which apply to your situation.
BC Property Transfer Tax:
This is a provincial tax charged every time a property changes hands. The cost is 1% on the 1st $200,000 of value, and 2% thereafter. If you are a first time homebuyer, there is a program to provide full or partial relief from this tax on properties up to $450,000 under specific conditions. We can help you find out if you qualify. BC Property Transfer Tax
H.S.T.:
For both used and new homes, there are some extra costs for buyers or sellers with the implementation of H.S.T. but these are for the services required to buy or sell, not on the price of the home.
Buyers of used residential real estate can expect to pay H.S.T. on items such as home inspectors, appraisals and other such services. Lawyer fees will not change as they have been forced to charge P.S.T. for years.
Sellers of used residential real estate can expect to pay H.S.T. on realtor commissions, and any other services they may use (we can’t think of any).
H.S.T. has different implications for used residential real estate and new residential real estate. There are also different rules for commercial properties, mobile homes and other types of real estate. Below is an explanation of each situation.
USED RESIDENTIAL REAL ESTATE
There is no H.S.T. on the price of used residential real estate, much like the current rules regarding G.S.T. There are no extra closing costs on the purchase or sale of a used residential house, subject to the comments above.
NEW HOUSING
Here is where the costs will increase.
H.S.T. will be payable on the sale of new or substantially renovated homes, where the Contract of Purchase and Sale was entered into after November 18, 2009 and both ownership and possession of the home is transferred after June, 2010. H.S.T. will not be payable on sales of newly constructed or substantially renovated homes where ownership or possession of the home is transferred before July 2010, or where the Contract of Purchase and Sale is dated prior to November 18, 2009.
New Housing Rebate
The Provincial Government is proposing a New Housing Rebate (“the Rebate”) to ensure that purchasers of homes priced up to $525,000 would pay no more tax, on average, than under the current P.S.T.
The Rebate is 71.43% of the provincial component of the H.S.T. paid, up to a maximum of $26,250.00.
To illustrate this, let’s assume a purchaser is purchasing a new home for $500,000.00.
| Current Tax Payable G.S.T |
Proposed Tax Payable H.S.T |
|
| Purchase Price | $ 500,000.00 | $ 500,000.00 |
| G.S.T. | $ 25,000.00 | $ 25,000.00 |
| H.S.T. additional tax | - | $ 35,000.00 |
| Rebate of H.S.T. (71.43% of H.S.T. additional tax) | - | $ 25,000.50 |
| Total Purchase Price | $ 525,000.00 | $ 534,999.50 |
Note that in the above example the purchaser is paying about $10,000 more with the H.S.T. This is approximately 2% more than under the current G.S.T.
The government states that while sales of new homes in B.C. are not directly subject to the P.S.T., building materials used in the construction of homes are subject to the 7% P.S.T. The total amount of P.S.T., on average, embedded in the selling price of a new home is estimated to be equal to two percent. As a result, the government claims that purchasers of homes priced up to $525,000 would pay no more tax, on average, than under the current P.S.T. This of course assumes that the price of homes drop 2% due to the elimination of P.S.T. on building supplies.
Note also that the maximum rebate is $26,250.00. This means that the extra tax will increase dramatically for homes over $525,000.00. Consider the following example for a home priced at $900,000.00.
| Current Tax Payable G.S.T |
Proposed Tax Payable H.S.T |
|
| Purchase Price | $ 900,000.00 | $ 900,000.00 |
| G.S.T. | $ 45,000.00 | $ 45,000.00 |
| H.S.T. additional tax | - | $ 63,000.00 |
| Rebate of H.S.T. (maximum of $26,250.00) | - | $ 26,250.00 |
| Total Purchase Price | $ 945,000.00 | $ 981,750.00 |
Using the above example, the purchaser of a new home priced at $900,000 will pay an additional $36,750.00 with the imposition of the H.S.T.
The new housing rebates would be federally administered in a manner similar to the G.S.T. rebates for new housing. Individuals would be able to file an application for the rebate directly with the Canada Revenue Agency. However, in the case of homes sold by the builder, similar to the G.S.T. new housing rebates, the builder would have the option of paying or crediting the new housing rebate to the purchaser at the time of purchase.
Appraisal:
Most lenders will require an appraisal of the property to support the lending value of the property. Fees are higher for revenue properties or more complex purchases. Commercial appraisals are significantly more expensive and more time consuming to prepare given the complexity of the appraisal required.
Property Inspection:
An inspection is a thorough evaluation of the structure, systems and components of a home. The inspection report is usually multi-paged, and comments on the condition of, but not limited to: foundations, electrical, plumbing, heating, water heaters, appliances, fireplaces, drainage, roof, walls, floors, attic, crawl spaces, patios, etc. The inspection is usually performed a day or two before the market value is determined by the property appraisal. An inspection can cost anywhere between $300-$500 but the cost is well worth identifying any major cost repairs required.
Title Insurance:
To protect the lender’s interest in the mortgaged property in the event there is some discrepancy on title that would create a legal problem, many lenders require title insurance. Title insurance is often a less expensive and acceptable alternative to getting a survey prepared for the property.
Survey:
Lenders may require a survey to support the transaction. A survey is a drawing by a certified surveyor of the property lines and where the building sits on the property. This is done so that the lender can verify exactly what and where they are lending on, and to provide some assurances that the buildings are not illegally encroaching on neighboring properties, etc. The cost of the survey varies for size/complexity of the property but standard neighborhood lots have a survey cost of about $270.
Mortgage Insurance:
The term Mortgage Insurance is used in two different ways, and each have different and specific purposes:
Life/Disability Insurance:
This insurance is often recommended by lenders to ensure that you are able to meet the mortgage payments should you or your co-borrower become disabled or die during the term of your mortgage. Rates and Coverage vary widely, so let us help you make sure you are getting the most coverage for your money.
Default Insurance:
Default insurance is usually required on loans where the borrower is borrowing more than 75% of the value of the property. Genworth and CMHC provide this insurance and the cost varies with the amount borrowed relative to the property value. There is a $165 application fee for these programs.
Realtor Commissions:
If you are purchasing and use a Realtor to help you, the seller will pay for their Realtor and yours. If you are selling, fees vary, but are often 6 or 7% on the 1st $100,000 and 3 or 4% thereafter. There are a number of lower commission Realtors, and their fees will vary. GST at 6% of the commission payable is also charged to the seller.
Legal fees:
If you are selling a property, you will be responsible for legal fees regarding clearing the title for the purchaser. If you are the purchaser, you are responsible for conveyance fees, preparation of statements of adjustment, and mortgage registration.
Interest Adjustments:
This is the interest that you will pay for receiving the mortgage funds for periods outside of standard payment periods. For example, if your completion date was on the 23rd of a 30 day month, you owe 8 days interest for those days before normal payment cycles commence.
Property Tax Adjustments:
Generally, property taxes for the calendar year are paid at the beginning of July. If you purchase a property before July 1st, the seller will be paying you for the days they owned the home from January 1st to completion day. You then are responsible for the entire amount to be paid to the municipality on July 1st. If you purchase a property after July 1st, you will pay the seller for the days you own the property from completion day to December 31st, as they will already have paid the entire amount to the municipality on July 1st.
Rental Deposit Adjustments:
If the property has a rental suite the vendor must transfer the tenant’s security deposit to the purchaser. If completion takes place mid-month, adjustments must also be made for rent collected by the vendor and pro-rated payment made to the purchaser.
Property Insurance:
If you have a mortgage on a property, almost every lender will want to make certain that you have adequately insured the property for loss from fire, flood etc. Note that the insurance must be for the full property value rather than just the mortgage amount. In the event of a loss, it is standard practice mortgaged property generally notes the financial institution as the payee. There is a fee of about $35 for the insurance company to confirm coverage in this manner and is often referred to as a “binder.”