Closing Time!

Buying or selling a home in British Columbia can be an exciting time, but it’s important to be aware of the associated costs, including closing costs. Closing costs are the out-of-pocket expenses paid during and at the end of a real estate transaction by both buyers and sellers to finalize the deal. While these costs can vary, understanding them can help you budget accordingly.

Upfront Costs for Buyers

First up, let’s take a look at what it costs to close the deal from the buyer’s perspective. During the purchasing process, there are often costs that you should be budgeting and expecting, so it’s great to have these in mind from the start:

Home Inspection: A thorough inspection of the property ensures that there are no hidden issues that might cost you money in the future. Cost typically ranges between $400 to $800 depending on the size of the home and the property.
Appraisal: An appraisal confirms the home’s value relative to other properties in the area, ensuring you’re paying a fair price. This is typically required when putting 20% or more down. Cost typically ranges between $200-$500, again, depending on size of the home.
Moving Expenses: Before closing, be sure to factor in the cost of moving, whether it’s hiring movers, renting a truck, or even providing food for friends and family who help you move. When you work with me, I offer a complimentary moving van for moves within the Okanagan Valley, so there’s a little savings built in for you there!
Utilities: Setting up your utilities may require deposits, particularly if you’re new to paying utilities or don’t have an existing account.
Home Insurance: Lenders require home insurance to be in place before finalizing your mortgage (you can usually bind your insurance policy in place within 30 days of actually closing/owning the home). Be prepared to make your first month’s payment within the first month of closing.

Costs at Closing for Buyers

Once you’ve marched your way through all your subjects, have decided this is for sure the property for you, you head to the closing day and there are more costs to account for. The following costs are provided to your lawyer, along with your down payment. These will be used to ensure all legal aspects of your transaction are covered.

Legal Fees: Real estate transactions require a lawyer or notary to handle the paperwork and registration to ensure everything transfers smoothly. These fees run anywhere from $1,500 to $2,500 depending on the complexity of the transaction.
Property (Land) Transfer Tax: Depending on your province, you may need to pay a property or land transfer tax (common in BC and Ontario) based on the home’s value. In BC, this equates to:
- 1% of the fair market value up to and including $200,000
- 2% of the fair market value greater than $200,000 and up to and including $2,000,000
- 3% of the fair market value greater than $2,000,000
- 2% tax will be applied to the residential property value greater than $3,000,000.
- So for instance, a home worth $800,000 would end up with a Property Transfer Tax bill due at closing of $14,000. This must be paid at closing and cannot be rolled into your mortgage.
Property Tax Holdback: If you choose to have your lender handle property tax payments along with your mortgage (often first time home buyers are required to have the lender handle the property tax), they will likely collect 30% of the annual tax amount upfront and hold it in a tax account.
Utilities and Taxes: If the Seller has already pre-paid for some utilities and property taxes, then you will owe them a pro-rated amount back at Closing, which will be calculated out by the lawyers on the statement of adjustments.
Title Insurance: Protects you and the lender from potential legal disputes over property ownership. The cost typically varies from $300 to $1,000, depending on the home’s value.
Mortgage Insurance: If you’re making a down payment of less than 20%, you may need to pay mortgage insurance. Your mortgage broker can calculate out what this will be for you.

Costs at Closing for Sellers

Real Estate Commission: This fee is set when the listing agreement is signed and is only paid to the real estate agent for their successful services at the Closing Day.
Legal Fees: Fees charged by a lawyer to handle legal paperwork and ensure the transaction is smooth.
Mortgage Disbursements: If you hold a mortgage on your property there may be penalties and fees associated with ending your mortgage (if cancelling early) and paying out the lender.
Utilities and Taxes: If you have not paid up to date on certain utilities and property taxes, then you will owe the Buyer a pro-rated amount back at Closing, which will be calculated out by the lawyers on the statement of adjustments.

Tips for Managing Closing Costs

Budget Wisely: Factor closing costs into your overall budget when buying or selling a home, no one wants to be house-poor at the end of the day!
Shop Around for Services: Get quotes from multiple lawyers, appraisers, and home inspectors to find the best rates.
Understand Your Mortgage: Be aware of any additional costs associated with your mortgage, such as lender fees or appraisal fees or penalties for breaking your mortgage early.
Cost Tip: If you’re buying and selling simultaneously, some costs can be covered by the sale proceeds or can be negotiated with the lawyers to cut you a break since you’re giving them both ends of the deal, but expenses like home inspections and moving will still be out of pocket.
Money on Reserve: Did you know that if you are putting down less than 20% for a down payment, you will need to show the lender that you have at least 1.5% of the purchase price set aside for closing costs, even though the actual costs may be lower. This is required in addition to your down payment amount.

By understanding the potential closing costs involved in a real estate transaction, you can better prepare for the financial aspects of buying or selling a home in BC and avoid any nasty surprises along the journey, which, let’s face it, are NEVER fun when it’s money coming out of your pocket!

Disclaimer: Please note that this information is intended as a general guide and may not cover all specific circumstances. It’s advisable to consult with a real estate professional or legal expert for personalized advice.

Would you like to know more about a specific closing cost or have other real estate questions, reach out and I would be happy to help!