BUYING OR SELLING A HOME?
BUYING OR SELLING A HOME?
| Whether you are buying or selling an home, here are some things you might consider before entering into and signing an agreement of purchase and sale. |
| Some hidden Closing Costs to watch for ... |
| Adjustments between Vendor and Purchaser |
| The standard form agreement of purchase and sale used by most real estate offices provides that the vendor (seller) and purchaser will adjust for prepaid and unpaid items related to the house. |
| A good example is house taxes, which are never paid on a daily basis, but rather in several instalments throughout the year. Therefore, dependant on the time of year and the frequency with which with the owner has paid taxes, there may either be taxes owing by the owner, when calculated on a daily basis, or a credit due. |
| A good rule of thumb is that if the closing is nearer the beginning of the year, the purchaser will usually have a credit in his favour (because no taxes have been paid). On the other hand, if towards the end of the year, the credit is usually in favour of the vendor (because all of the taxes for year have been paid). |
| The same principle holds true with any "flat rate" utilities, such as water. If the vendor has prepaid the water bill just before the closing date, the vendor will require a credit for the period which has been prepaid. |
| It is important to remember that these adjustments are amounts which a new home owner would have to pay anyway, as part of the cost of owning a home. The difference is that they may all come in one lump sum on the closing date, and if not anticipated in advance, may come as an unpleasant surprise. |
| Mortgage Interest Adjustment |
| If the purchaser has had to arrange a new mortgage, and regular payments of principal and interest are to begin on the first day of a month subsequent to the closing, there will be an adjustment of interest required which the lender may deduct from the mortgage advance made at closing. This is because most weekly or monthly mortgage payments are made "not-in-advance". |
| For example, if the closing of the house purchase takes place on the 10th of June, and the monthly repayment is to be made on the first of the month, the first such payment will likely be made on the 1st of August, not on the first of July. Thus, there will be an additional amount of interest payable on the borrower's mortgage to cover the period June 10th to June 30th. If this is deducted from the mortgage advance on closing, as it often is, the borrower will have to increase the amount required for his or her "own payment" on closing to cover this. |
| It is a good idea to discuss with the mortgage officer at the bank, trust company or credit union when arranging the loan to determine how interest adjustment will be handled. |
| Other closing costs ... |
| In addition to other disbursements which the lawyer may charge his or her client, the following expenses are part of the cost of closing a real estate purchase. |
| Land Transfer Tax This tax is charged by the Government of Ontario on all house purchases at closing. For example, the tax on the purchase of a $150,000 home would be, at rates in effect presently, $1225.00. |
| Search Costs |
| These are the costs your lawyer will incur on your behalf to complete searches necessary to make sure that there are no outstanding mortgages, liens or other charges against the property you are buying. These searches include, but are not necessarily limited to: |
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| Registration Fees |
| The registry office will charge a fee for the registration of each document, such as a deed or mortgage, required for closing. At the present time, this fee is $50.00 per document. |
| Discuss the costs with your lawyer ... |
| It is always a good idea to review the agreement of purchase and sale with your lawyer before it is signed. Most lawyers will charge only a modest fee for doing this, and may even incorporate this service into the overall fee for doing the work on your house purchase or sale. |
| At the same time, discuss with your lawyer the other costs associated with closing, including his or her fees and disbursements and the other costs and expenses described above. |
| Your lawyer should be able to give you some estimate of the extra costs you can anticipate at closing. |
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Malcolm A.F. Stockton
Barrister, Solicitor & Trade-mark Agent
4786 Queen Street, Box 868
Niagara Falls ON
Canada L2E 6V6
stockton@iaw.com
Updated March 9, 1999.