Who Pays What? A Guide to Closing Costs – Part 1


Who Pays What? A Guide to Closing Costs – Part 1



Buying a home, especially your first one, is an exciting process. It’s easy to get caught up in the details and sometimes surprise expenses or setbacks show up. That’s why we want to share with you our Guide to Closing Costs so that you know who pays for what when buying and selling a home. Today we’ll focus on buyers and next week, sellers.

Legal fees. Real estate lawyers facilitate the legal transaction of the home purchase. He or she will initiate a title search, provide you with title insurance (if requested), draft and register important documents on your behalf, examine any potential issues and protect your best interests. Legal fees on a property purchase often range between $1500-2000, depending on mortgage registration, tax adjustments, insurance and more.

Title Insurance. Though it is not required like home or auto insurance, it is still very beneficial. A one-time fee of $200-275 protects against future discoveries of the property like title fraud, unknown liens, encroachments, municipal by-law violations and other issues. Title insurance can be added to property at any time, even if you’ve already resided in the home for five years. A few years ago, we chose to add it to our home because of the cost is a minimal investment compared to the risk coverage you receive.

Taxes Adjustments. These can be confusing and create surprise costs at closing time. In Alberta, property taxes can be paid monthly or in one lump sum on June 30th. If you’re closing on a home between July 1-Dec 31st and the taxes have been paid in full, the buyer is responsible to reimburse the seller for the portion of taxes from the closing date until the end of the year. Let’s say for example you purchased a property with taxes of $4000/yr. If you took possession on Oct 1st, you’d have to reimburse the sellers for three months of pre-paid taxes, which is approximately $1000. That’s a significant expense, especially if you haven’t budgeted for it.

When sellers pay their taxes monthly, the reimbursement is based on the difference between the closing date and the number of days taxes have been prepaid that month. For example, if you took possession Nov 25th and the taxes are paid until Nov 30th, you’d owe them for 6 days of taxes.

Home Inspection. Costs vary depending on factors such as location, age and size of property, type of dwelling (condo, half duplex, detached, etc.), extras (garage, shed, developed basement, etc.). Pricing generally averages between $450-550.

Property Appraisal. If you bought your property with less than 20% down, your mortgage is considered high-ratio, therefore it is insured through a mortgage insurance company like CMHC or Genworth. Appraisals are computer generated with high-ratio mortgages; therefore, no additional appraisal cost is paid by the buyer. If, however, you put more than 20% down on the purchase of a property, the lender will send a professional appraiser out to inspect and appraise the property. In this case you could anticipate an appraisal fee up to $350.

Moving Expenses. These include things like hiring professional packers and/or movers, purchasing boxes (or totes), packing supplies, renting a storage space or moving truck, and utility set up service charges. These costs can vary from nil (when you hire friends and family to help in exchange for pizza and beer) and up to a few thousand dollars for professional packers, movers etc.

As a general rule of thumb, it’s recommended to set aside an extra 1-1.5% of your purchase price for closing costs. That way you can be confident you’ll have what’s need for added costs. Be sure to check back next week as we discuss our Guide to Closing Costs for sellers. If you’ve considered buying or selling a home, give us a call. It is always our highest honour to help clients and friends achieve their real estate goals!

Jason Rustand with RE/MAX Real Estate serves with the highest level of integrity and excellence every time. For more info on this topic or others related to real estate contact LIKE our Jason Rustand Team Facebook page, email jrteam@shaw.ca or visit WeSellLeduc.com.