BUYING a HOME
Lawyer Fees - $1425 plus HST
The lawyer's role in the purchase of a property is to certify to the Buyer that:
1) there is good and marketable title to the property, free from all liens and encumbrances;
2) the location of the structures on the lot (i.e. buildings such as a house, garage, addition, deck) comply with applicable zoning by-laws; and
3) there are no property tax or water arrears.
When a person purchases a home, there are various expenses involved to complete the transaction. In order to avoid any financial surprises, here is a breakdown of typical costs associated with the sale or purchase of a single-family residence.
1. Land Transfer Tax
This tax is collected by the Government of Ontario and must be paid by everyone who purchases property in Ontario. The tax amount is dependent on the purchase price and is paid on the closing date. The following rates apply for a single-family residence:
| $0 to $55,000 | 0.5% |
| $55,001 to $250,000 | 1% less $275 |
| $250,001 to $400,000 | 1.5% less $1525 |
| $400,001 and up | 2% less $3525 |
Here is a sample calculation with a purchase price of $500,000:
($500,000 x 2.0%) - $1,525 = $6,475, is the Land Transfer Tax payable.
First-time Homebuyer
A first-time homebuyer may qualify for a refund of Land Transfer Tax, up to $4,000.00. In order to qualify, the Buyer cannot have owned a property or have held an interest in property anywhere in the world, must occupy the property within 9 months of closing and be a Canadian citizen or permanent resident.
If a spouse is a first-time homeowner and the other is not, the first-time homebuyer spouse will only qualify for the refund if the other spouse sold their property prior to the parties becoming spouses of one another (either through marriage or at common-law). If that is the case, and the property was sold before the couple became spouses of one another, then the first-time homebuyer would qualify for the full $4,000.00 refund.
If a first-time homebuyer does qualify, the refund is immediately applied at closing. As a result, for purchases under $368,000, there is no Land Transfer Tax payable for a qualifying first-time homebuyer.
2. Disbursements
Disbursements are out of pocket expenses that are charged to complete the transaction. In order for the lawyer to certify good and marketable title to the property, numerous enquiries and searches are required.
The cost of such enquiries varies depending upon the purchase price of the property and the municipality in which the property is located. Examples of these disbursements are:
| Tax Certificate | $85 |
| Water arrears certificate | $85 |
| Hydro Account Inquiry | $11 to $17 |
| Gas account inquiry | $17 |
| Zoning compliance | $255 |
| Hydro work orders inquiry | $60 |
| Septic search | $115 |
| Status Certificate (condos only) | $113 |
| Sheriff's certificate ($11 per name) | $52 to $104 |
| Title search | $200 to $350 |
| Title Insurance (purchase up to $500,000) | $435 |
| Title Insurance (condominium) | $250 |
In addition, there are also registration costs such as:
| Registration of the Deed/Transfer | $75 |
| Registration of the Mortgage/Charge | $75 |
| Registration of the Restrictive Covenants (new home only) | $75 |
Disbursements of a property located in the City (connected to City sewer and water) are approximately $1,000. If a property is out-of-town/rural, then the disbursements are usually a further $250.
3. Title insurance
All of our residential real estate transactions are title insured. In addition to disbursements, there is also the cost of a title insurance policy. Title insurance protects and provides coverage to the Buyer against issues relating to title and for losses due to title defects.
The policy is a one-time fee and is in force for the entire time you own the property. The policy is arranged by the Buyer’s lawyer and is paid at the time of closing.
For the purchase of a home, with a purchase price of under $500,000, the price of the policy is usually $455, for a condo it is $255. For homes and condominiums over $500,000, the price of the policy increases by $1 for every $1,000 over $500,000 (for example, with a purchase price of $550,000, the policy would be an additional $50 for a total of $495).
As a result of obtaining title insurance, there are numerous off title searches that are no longer required for a total savings of more than $600.
For example, a property tax certificate would not be ordered saving the Buyer $85. The Buyer relies on the Sellers representation that the property taxes are up to date. If arrears did exist, the title insurance company pays the bill.
Title insurance also provides coverage in cases where no up-to-date building location survey exists. This saves a buyer as much as $5,000 (see paragraph 7).
4. Adjustments
The Agreement of Purchase and Sale provides that property taxes, fuel, rent and other costs will be apportioned, and the purchase price will be adjusted, to the date the buyer takes possession. A common example of an adjustment is for property taxes. For example, if property taxes for the year were $3,600, and the transaction closed on October 1st, here would be the adjustment for property taxes:
| Property Taxes for the full year = $3600 |
| Seller has paid = $3600 |
| Seller is responsible for = $2692 (273 days @ $9.86 per day) |
| Credit to the seller = $907.40 ($3,600 - $2,692) |
In this example, the Seller overpaid their share of the property taxes. There would be an adjustment, being a credit, to the Seller for the overpayment. As a result, the Buyer would owethe property tax adjustment ($907.40, in the example above), in addition to the purchase price.
5. Legal Fee
Legal fees will vary from lawyer to lawyer. Our legal fees for a residential real estate transaction start at $1,425 + HST. Our legal fees for the purchase of a multi-residential property (duplex, triplex, etc.), or commercial will be greater.
6. PST (8%) on CMHC Insurance Premium (if applicable)
If the down payment is less than 20% (a “high-ratio mortgage”), the mortgage must be CMHC insured. Provincial sales tax of 8% is charged on the CMHC insurance premium. The actual cost of the insurance premium will be added to the principal amount of the mortgage; however, the PST is payable on closing. CMHC insurance premiums are as follows:
| 80% to 85% | 2.8% |
| 85% to 90% | 3.1% |
| 90% to 95% | 4% |
7. Survey
A Building Location Survey depicts the location of the building on the lot. It is necessary in order to determine that the building’s location complies with the set back requirements of the Zoning By-Law.
Both the Buyer and the Buyers lender require confirmation of compliance with the Zoning By-Laws. If the Seller has an existing survey, they will make it available to the Buyer. If there is no survey or the survey is out of date, it is the responsibility of the Buyer (unless the Agreement provides otherwise) to obtain a new survey prior to closing.
The approximate cost of a survey is $5,000. Fortunately, Title Insurance replaces the necessity of obtaining a new survey saving a Buyer $5,000. (see paragraph 3 above).
8. Newly built homes
The standard Agreement of Purchase and Sale used by most builders may contain additional costs to be borne by the Buyer. Examples are:
1. the preparation of the Transfer (Deed), which usually ranges from $225 to $275.
2. Tarion Enrollment Fee - By law, new homes must be enrolled in the Tarion Warranty Program. The cost of the enrollment fee will depend on the purchase price. For the purchase of new home costing between $750,000 and $800,000, the enrollment fee would be $1,905
SELLING a HOME
Lawyers Fees - $1,150 + HST.
Discharge of one mortgage registered on title is $275 + HST.
When acting for a Seller, the lawyer’s role is to:
1) prepare the documentation;
2) respond to any valid problems regarding title and zoning; and
3) pay and discharge the Seller’s mortgage.
1. Disbursements
Fortunately for a Seller, the disbursements on a sale are less than on a purchase. One can expect some of the following disbursements:
| Registration of the discharge of the mortgage | $80 |
| Tax Certificate | $85 |
| Sub-search of Title | $100 |
| LSUC transation levy surcharge | $74 |
| Software transaction fee | $225 |
| Archive fee | $45 |
| Miscellaneous expenses | $200 |
2. Adjustments
Similar to a purchase, there will be items that will require adjusting for. Example of such items include property taxes, condominium fees and rent. If the house is heated by propane, the Seller will fill the tank and is reimbursed by the Buyer for a full tank.
3. Legal Fees
Our legal fee for representing a client selling a single family home or condo is $1,150 + HST. Our legal fee to arrange for the discharge of one mortgage registered on title is $275 + HST.
COMMONLY ASKED QUESTIONS
(Responses are according to my practice)
FOR A PURCHASE:
Q. When and where will the Buyer pick-up the keys?
A: The Buyer picks up keys either from a lock box at the property or at our office on the day of closing. The Buyer should expect keys between 4:30 p.m. and 5:00 p.m. If keys are ready earlier, our office will call the Buyer. Please note that there are no guarantees that keys will be provided prior to 5:00 p.m. on the day of closing.
Q. When should the Buyer reserve their movers?
A: Movers are usually paid on an hourly basis. Consequently, we recommend that a Buyer reserves the movers in the early afternoon (around 1:00 or 2:00 p.m.). Assuming that 2 or 3 movers will take 2 to 3 hours to load, keys would be required between 4:00 and 5:00 p.m. Again, no guarantees that keys will be ready prior to 5:00 p.m.
Q. When will the Buyer know how much money will be required to close the transaction?
A. Our office will usually know the amount required to close, 3 or 4 days prior to closing. We will have met with a Buyer at the very beginning of the process and provided him/her with a close estimate of the sum that will be required.
Q. How does the Buyer pay for all closing costs?
A. The closing costs are made payable to the law firm, in trust, and is in form of a certified cheque or bank draft that can be deposited directly to our trust account; or, alternatively can be wired to our office by your bank.
Q. Who needs to be present to sign the documentation?
A. Every person who is going on title to the property must be present to sign all documentation. This meeting is usually held a few days prior to closing and lastsaround 45 minutes. These meetings can be in-person or via video conference as our clients prefer.
Q. What if someone who is required to sign is out-of-town?
A. The documents can be sent to the out-of-town Buyer or Seller by email and signed during a virtual call. We try to make the signing process as convenient as possible for our clients.
Q. Can a sale and purchase close on the sale day?
A. This is certainly achievable, however it is not an ideal situation. The timing is contingent on the delivery of mortgage funds to a buyer’s lawyer, who is then in turn responsible for transferring those funds to the selling lawyer. Sometimes, wire transfers and direct deposits are delayed. In this case, it would be more beneficial if either the purchase or the sale closed one day apart.
Q. Can a Buyer request a key from the Seller prior to closing (i.e. to move some of their itemsto the property)?
A. Nothing legally prevents a Buyer from making such a request; however, If the Seller consults his/her lawyer, the answer will most likely be “NO”.
Q. Does a Buyer have the right to inspect the property prior to closing?
A. There is no right to inspect the property prior to closing, unless it is provided for in the Agreement of Purchase and Sale.
FOR A SALE:
Q. When will the Seller receive the money from the sale?
A. Money can be made available on the actual day of closing; however, given the difficulty in predicting when the transaction will close, we tell clients to expect the delivery of funds by 12pm the day after closing.
Q. When does the Seller have to vacate the property?
A. The Seller’s obligation is to provide vacant possession upon completion of the transaction. The Seller should vacate no later than 5:00 p.m. on the day of closing.
Q. What is the Seller’s obligation regarding the condition they leave the property?
A. The Seller should leave the premises in a clean and tidy state. All garbage should either be removed or bagged and left in front of the property for collection.
Q. Should a Seller let the Buyer have a key prior to closing, in order to help facilitate the Buyer’s move?
A. We do not recommend that a Seller provide a key to the Buyer prior to closing. A Seller is taking a risk that the Buyer, upon viewing the property prior to closing, will find an issue and refuse to close. This risk is remote and ultimately it is the decision of the Seller. The Seller may know the Buyer personally and have no reservations in assisting the Buyer.
FINAL NOTE
When selecting a lawyer, a Buyer or Seller ought not to base their selection simply on the lowest legal fee. Real estate is an area of law where the service is important. The manner in which your lawyer completes your sale or purchase will have a direct impact on your state of mind.
Purchasing or selling a property can be stressful. It is important to choose a lawyer who will ensure you are fully informed and will help you avoid unnecessary surprises.
Once a transaction is firm (unconditional), one of our lawyers will meet with you virtually as part of the service we provide, at no additional cost to you. This meeting is approximately 30 minutes during which we will calculate all of the financial costs of your particular transaction as well as provide you with a detailed list of all that you must know - and do - to prepare for closing.
Before selecting a lawyer, a Buyer or Seller would be well advised to satisfy themselves as to the following:
1) Did the lawyer return your initial call, promptly, to discuss the transaction? Was the lawyer informative or vague? Was the lawyer personable? Would you enjoy dealing with this person?
2) Does the lawyer intend to meet with you at the outset of the transaction to finalize the cost and explain the process?
3) Will the lawyer be meeting with you themself, personally/virtually, at the time of closing to explain the documentation?
4) How long has the lawyer been in practice? Is real estate the lawyer’s area of expertise?
CONCLUSION
You may have additional questions regarding the materials you have just read. If so, we encourage you to contact us directly. We welcome any enquiries that you may have and are happy to respond to your questions free of charge.
Ken Hoyt completed his law degree at Queen's University in 1984, and moved to Ottawa to complete his articles and establish my law practice. Our practice mainly consists of residential real estate, wills and estates. Our office is conveniently located at 157 Gilmour Street, Ottawa (just east of Elgin Street). Today, Robert Hall and Kodi Edmunds proudly continue Ken’s legacy of providing top-tier customer service – with a touch of humour.
If you have any questions after reading this article, we welcome you to contact us directly:
Telephone or Email:
(613) 231-2995
Robert Hall - [email protected]
Kodi Edmunds - [email protected]
