BUYERS INFORMATION

You made an offer on your dream home and it has been accepted! Your financing has been approved and a down payment has been solidified. You’re officially a homeowner! Before you uncork the champagne, is there one expense you’ve forgotten? By remembering to factor in closing costs, you can avoid an unpleasant surprise on closing date.

What are Closing Costs?

Closing costs are those "extra costs" outside of the agreed upon purchase price such as property taxes, utility bills and legal fees and usually amounts to approximately 1 to 3 percent of the purchase price. These new costs are typically outlined in the closing statements which set out the various adjustments, charges, and disbursments. The seller’s lawyer will divide property expenses for the year of sale between the buyer and seller as appropriate and all payments are due on the closing date for both parties.

What Could be Included?

Many of today’s sophisticated buyers are aware of some elements that will most likely be included in the closing contract. For example, adjustments such as property tax, previously agreed upon repairs and shared utility expenses are usually anticipated. On the other hand, in Ontario other closing costs might include land transfer tax, deed registration, sheriff’s certificate, and legal fees and disbursements.

Annual property taxes are divided between the vendor and purchaser according to the number of days they each had ownership of the property during the year of sale. For example, if February 3rd is the closing date, the vendor would be responsible for the first 33 days of the year in question or 9 percent of the year’s property taxes. If the vendor has already paid the year’s taxes, the buyer will be required to reimburse the seller for 91 per cent of the taxes, owed on the closing date. In a case where the vendor has not paid the taxes, they will be required to pay for their portion (9%) of the year of sale by closing.

Similarly, buyers should investigate any additional taxes such as land transfer tax and local improvement taxes. When assigning responsibility for taxes, the buyer is responsible for costs incurred on the actual closing date. In other words, since the purchaser is taking possession of the home on February 3rd, their portion of the taxes would include that date.

How to be Prepared and Avoid Surprises on Closing Day

The close of a real estate transaction can be stressful - even for the well-prepared. Chances are your closing will be routine, but many people experience some anxiety as is the case with any major transaction. Why wait to negotiate closing costs until the final stage of the transaction? To help reduce stress, try to review and address possible fees and costs with your legal advisor and ask for a summary of costs ahead of time. By preparing carefully for closing you can diminish your chances of a problem such as a delayed closing or receiving insufficient compensation for your expenses.

Inspect the house as close to the completion date as possible. If repairs were to be completed, an inspection is critical to ensure all of these tasks were indeed accomplished. Consider photographing all the items that are included in your purchase agreement prior to taking possession of the home. Once you’ve moved in and discover the washer/dryer set that was included in your offer is no longer in your basement, it will be difficult to recoup your loss without proof. Remember, it’s easy to prevent surprises on closing day -- if you prepare!