High Level Law

Other Costs When Buying and Selling a Home

When buying a house, most people only think about the immediate costs, such as qualifying and paying for a mortgage, and do not always consider other necessary costs that will arise. As a result, many people face a tough couple of months financially after they purchase a home because they were not prepared for these additional costs. These costs include:

Deposit – This must be paid when you make an offer to purchase and must be a reasonable amount.

Home inspection –An inspection can be conducted to determine any structural or functional issues with the property, which can help you determine any necessary repairs you will need to make. This will help you decide whether a change in the purchase price should be negotiated, or if you even want to purchase the property at all.

Service Fees for Lender – If you are working with a mortgage company, you may need to pay an application and/or other fees, as determined by the lender.

Mortgage Life Insurance – Can be obtained to pay out your mortgage is paid in the event of your death.

Canadian Mortgage and Housing Corporation (CMHC) Fees – Buyers are not able to finance 100% of the purchase price of a home, and must have a down payment of at least 5% of the purchase price of the home. If you are not able to put down 20% of the purchase price, your mortgage will be classified as high-ratio and must be insured by CMHC in case of default. The premiums for this vary on a sliding scale depending upon the amount of your down payment, and are paid out of the funds advanced by the lender for the mortgage, resulting in an increased principal mortgage amount owing.

Home Owners Insurance – If you are obtaining a mortgage, the lender will include a condition that you must insure your home against loss, naming the lender as the first loss payable.

Legal Fees & Disbursements – These are fees charged by the lawyer to receive instructions from your lender, prepare your mortgage documents, as well as the additional documents to register the title of the property in your name with Alberta Land Titles, and to pay the government fees associated with this registration.

Property Tax Adjustment, Prepaid Utilities Adjustment –If the seller has paid their yearly taxes (and in some cases utilities), the buyer will need to reimburse taxes paid for the current tax year on a pro-rated basis for the length of time for which the buyer will own the property. If the seller has not paid the taxes for the current tax year (or prior) then the seller will have to reimburse the buyer on a pro-rated basis for the length of time for which the seller will have owned the property. Equally if a seller has prepaid taxes for the upcoming tax year, this amount will have to be reimbursed by the buyer.

Title Insurance – Provided by 3rd party insurance companies and may be mandatory depending on your lender.

GST – If you purchase a new home from a homebuilder or developer, GST will be charged on the purchase. You can also expect to pay GST on the fees charged by lawyers, home inspectors, surveyors, realtors and anyone else whose services you engage during the purchase process. There is currently a GST rebate on qualifying home purchases, but the rebate is only partial and is clawed back based on property value: lower priced homes are entitled to the full rebate and as the price of a home increases the rebate entitlement decreases.

Other Costs – Other costs you may incur are those of hiring professional movers; connecting services such as electricity, gas, internet, etc.; landscaping the property; construction or repair of fences or decks; purchasing or replacing appliances; and ongoing home maintenance costs.

For Sellers, there can also be costs that were not anticipated, such as:

Real Property Report - the cost of obtaining a new RPR. A new RPR that shows the new state of the property must be obtained if any permanent additions or significant reconfigurations have been made to the home, or any new permanent outbuildings have been constructed on the property. If a new RPR is required, the standard practice is that the seller will pay for this cost, unless other arrangements have been agreed to (i.e. title insurance).

Tax Adjustments - the seller will still have to pay its proportionate share of taxes for the current calendar year if not paid already, and the lawyers will adjust for this.

Realtor’s Commission - Another cost which buyers and sellers must both be aware is the, which is typically a percentage of the sale price of the home. It is often paid out of the sale proceeds of the home, unless another arrangement has been made.

Mortgage Prepayment Penalty – When selling a property and paying off the mortgage, the seller’s mortgage company may impose a prepayment penalty for paying the mortgage off early and not completing the full term of the mortgage. Sellers should ask their mortgage company if they will be subject to a prepayment penalty and how much.

Legal Fees & Disbursements – See above.