Chapter 14 – Extra Costs to Consider
When you are buying a house, you will need to have additional funds set aside for closing costs. These costs can add up to a substantial amount.
The following is a list of the most common costs, with an indication of their price.
APPRAISAL $350 – $500
Lending institutions usually require an appraisal to be done to confirm the property value, and to make sure that it is the kind of property they will mortgage – for example, some lenders will not finance hobby farms or heritage designated homes.
It is not part of the appraiser’s function to look for structural problems. For that task, you need a building
BUILDING INSPECTION $500
A building inspection will identify problems with a house. For example, is the roof leaking or needing replacement? Do the beams have wood rot? Is the foundation sinking? An inspection does not give any indication of property value.
The building inspector will usually give you a list of necessary repairs and sometimes an approximate cost for each.
You should make your purchase agreement subject to a satisfactory building inspection.
What if there is a problem? Bring your realtor with you. There are various solutions, depending on the problem.
- You could decide the problem is minor and accept the property as is.
- You could try to negotiate a reduction in purchase price.
- The vendor could fix the problem to your satisfaction.
- If any major structural faults are found, or if the combined total of minor problems is in excess of an agreed amount, you can refuse to remove the ‘subject to…’, walk away from the deal and have your deposit refunded.
GST (Goods & Services Tax) $0 to $ thousands
GST is charged on most types of services involved in the real estate transaction. Some examples include: legal fees, Realtor commissions, appraisals, and surveys.
GST is NOT charged on the purchase price when you are buying a previously occupied residence. This includes a house, apartment, vacation property or non-commercial hobby farm.
GST is charged when you are buying (or building) a newly constructed residence (house, apartment etc.). The entire amount including land value is subject to the tax. If the residence is to be owner-occupied then you may qualify for a GST rebate of approximately 36% of the GST charged, depending upon the completed value of the property.
Check with your lawyer to learn the current rules regarding ‘new construction and the GST.
HOUSE INSURANCE $250 – $850
House insurance covers the replacement value of the property. Premiums will vary depending on the value. Lenders insist on house insurance because the property is their security for the loan. Your lawyer will need confirmation that insurance has been arranged.
Should your house burn down, the insurance company is required to pay the lender first. You will still own the lot and will then have to re-negotiate with the lending institution to borrow to build a new house.
If you rent all or part of your house, be sure to declare this to your insurance company to avoid any future problems arising from insufficient or invalid coverage.
Discuss with your insurance broker other aspects of house insurance such as: contents, liability, and business coverage if you intend to run a home business.
LEGAL FEES $1,000 – $1,500
The lending institutions require you to have a lawyer or notary prepare and register the mortgage contract. You can usually choose your own lawyer. Fees can vary – I usually recommend that first time buyers use a lawyer despite being slightly more expensive.
MORTGAGE BROKER FEES $0 to $ thousands
For the vast majority of mortgage applications, mortgage brokers do not charge the client any fees. Brokers are paid by the lending institution.
In some cases, brokers charge a fee. Fees are charged for various reasons when the financing is through private lenders, and when commercial property is purchased. Fees may also be charged in other circumstances. In all cases, your broker must tell you up front if there will be a fee. You will be informed in writing of the amount of the fee.
MOVING EXPENSES $200 – $ thousands
These costs vary greatly, depending on how much furniture you have to move – and how far you are moving. For example, the cost of a few friends helping someone to move a bachelor apartment will be much less than moving the contents of a four bedroom house across the country.
If you are going to hire a professional moving company to do the work for you, you should definitely shop around as rates vary significantly. You may also want to consider the savings of packing everything yourself versus having the moving company do this for you.
Don’t forget to take into account the cost of insuring your possessions against moving accidents.
PROPERTY TAX ADJUSTMENT $0 to $ thousands
No matter what time of year you are buying your house, there will be an adjustment of property taxes. In
Your lawyer will find out how much the property taxes are for the new residence and will calculate how much the vendor owes and how much the purchaser will owe.
REALTOR FEES $0 to $ thousands
The vendor (the person selling the house) usually pays these fees.
The amount of the fees must be taken into account if you are selling one property and buying another. The amount of the fees will reduce the amount of money you have available after the sale is completed. Realtor fees are subject to GST.
RENOVATIONS $0 to $ thousands
Don’t forget to allow funds for any repairs you may want (or need) to make.
SURVEY $250 – $750
A legal survey is frequently required by the lending institution. The survey shows the exact legal boundaries of your property and the exact location of all buildings, rights of way, and any other encroachments.
Frequently the vendor will have a copy of the survey certificate and gives or sells it to you, with a declaration to the lawyer that there are no changes. In such cases, new surveys may not be needed.
UTILITY CONNECTIONS $150 – $250
Last, but not least, don’t forget the additional costs that all our wonderful utility companies charge us to connect to their services.