Buying or Selling a House
Once accepted by both parties, the “offer” becomes the Agreement of Purchase and Sale and is the contract. In addition to the expertise of your agent, it is wise to have the offer reviewed by a lawyer, particularly regarding requisition dates and conditions. When being quoted a fee for a real estate transaction, it is important to be aware of what disbursements (expenses) will have to be paid to close the transaction, as these are in addition to the lawyer’s fee. It is also important to be aware that the Mortgage is a separate legal transaction from the Purchase.
It is very important to obtain the “bottom line” as to the total cost when asking for a quote, including all fees, all taxes, and all disbursements. With a real estate purchase, Land Transfer Tax is an additional expense calculated on the purchase price and is paid to the Provincial and Municipal Governments (in Toronto) when a real estate transaction is completed (the closing date). First time home buyers may qualify for a credit on the Land Transfer Tax.
Purchase of a New Home
Congratulations! You have entered into an Agreement of Purchase and Sale for a new home or condominium that is yet to be built, or is in the process of construction. Because it is a new home, this document will be quite lengthy and likely contain many schedules. You will be the Purchaser, the builder/developer will be the Vendor. The following points should be borne in mind while you are signing the Agreement and/or reviewing the documentation:
- First and foremost, confirm whether or not the purchase price includes GST. While usually there is a GST rebate that will be signed over to the builder, it is important to clarify whether or not the purchase price shown on the face of the document includes GST or not. If it does not include GST, confirm exactly how much GST will be payable on the purchase price after the rebate has been paid to the builder.
- There will be certain "hidden" or extra expenses that are listed within the Agreement of Purchase and Sale, as “adjustments”. Some of these may include the following:
- The payment of the vendor’s Law Society surcharge ($53.00) and/or possibly even legal fees for the builder.
- Pavement of the driveway (possibly $800.00 to $1,000.00).
- Security deposit (possibly up to $1,000.00)
- Installation and hookup of water and natural gas meter (@ $250.00 to $300.00 each or more)
- Development charges/ levies
It is important that as the purchaser you know exactly how much the total purchase price of the house will be, including the various "hidden" costs. While the Vendor’s salesperson may not wish to review these with you in detail, you should insist on going through them so that you are clear as to all the expenses that will be required to be paid under the Agreement of Purchase and Sale. If possible, you should try to cap these additional costs / adjustments. New condominiums will usually have an interim closing date, and a second “final / title transfer” date. During the occupancy period, the purchaser pays an occupancy fee, which is essentially similar to rent. There are ways to minimize or reduce the interest component of the occupancy fee - please contact us for more information about this.
If you are a first time home buyer you may be entitled to the first time home buyers Land Transfer Tax refund. Please note that the maximum that you can get as a refund for the Provincial Land Transfer Tax is $2,000.00. The Land Transfer Tax payable on a purchase price of $250,000.00, for example, is $2,225.00. Even with the tax credit, the net Land Transfer Tax payable by the purchaser on a purchase price of $250,000.00 would be $225.00. If you purchase in the City of Toronto, there is an additional municipal Land Transfer Tax.
There will be legal fees and disbursements payable for the purchase to your lawyer. Disbursements are the actual out-of-pocket expenses incurred by the lawyer to close the purchase including title searches, execution searches, payment of municipal fees for tax certificates, building clearance certificates, title insurance and other expenses such as registration of the deed and/or mortgage, and photocopying, travel, faxing etc.
GST is payable on legal fees, and in addition there is a Law Society surcharge of $50.00 which must be paid on all real estate transactions (unless title insured). In the event that this is a condominium or townhouse condominium purchase, there is usually an interim closing date and a final closing date with the result that there is substantially more work for the lawyer. This will result in an additional amount being added to the fee for the legal work.
Finally, it is important to bear in mind that the proposed closing date for a new home that is being built is quite often extended due to delays in construction. Consequently, in buying a new house or condominium, you should be aware that the closing date may not actually occur on the date indicated in the Agreement of Purchase and Sale. This is particularly relevant for purchasers living in rental properties. Do not give your notice to terminate your tenancy until the final closing date is confirmed.
With regard to new homes, the builder must be registered with the Tarion Warranty Corporation. The telephone number for the Tarion Warranty Program is 416-229-9200. By calling this number and providing the builder’s name, you can find out information such as how long the builder has been in business, whether or not there has been a history of complaints, what their rating is with the Plan and any other relevant information relating to the quality of work or complaints history against an individual builder.
It is also prudent in signing an Agreement of Purchase and Sale to have a condition that you have the opportunity to review it with your solicitor before it becomes final. In any event, ensure you have it reviewed by a lawyer as soon as possible to determine sure whether there are any unacceptable terms, and in particular what the requisition date specified in the Agreement of Purchase and Sale is.
If you are obtaining a mortgage for your purchase, and it is more than 80% of the value of the purchase price, it will be a "high ratio" mortgage. If it is a high ratio mortgage, you will require Canada Mortgage and Housing Corporation (CMHC) or other high ration insurance approval, with the corresponding fee which can be up to 3.5% of the value of the mortgage and more in certain circumstances. This fee is added to the principal amount of the mortgage and is not required to be paid "up front" by you. PST is deducted from the loan advance. You should ensure you understand the cost of the loan to you.
Mr. Zarowsky will charge $850.00 for the purchase and mortgage work, plus GST, title search, registration costs (deed and mortgage), executions, courier, title insurance etc., for a total of approximately $1,450.00 to $1,550.000 including all fees, taxes and disbursements. If the purchase price is over $500,000.00, or a multi-unit or a commercial property, the cost will be more, as the title insurance premium is higher, and there are some additional disbursements. In obtaining a quote for legal fees for a real estate transaction, it is very important to obtain a true “bottom line” price, as some law firms will quote a lower figure to secure the transaction and then charge extra for disbursements on closing, adding to the original lower price quoted.
In order to complete your documentation for closing, we will need your Direction re Title, including your date of birth, spousal status (single, married or common-law) and address for service.
I trust this information is of assistance and answers some of your questions. Should
you have any questions relating to any of the above, please do not hesitate to contact us.
Possible "Hidden" or Extra Expenses
- Tarion Warranty Corporation registration fee
- Hydro account set up fee and other utilities
- Telephone and other charges
- Additional Landscaping charge, fencing fees
- Survey fee
- Paving and/or Driveway apron
- Educational/ Development charge - important to confirm.
- GST and/or PST on some or all of the above.
Please ensure you determine whether any of these apply under the Agreement of Purchase and Sale, and try to have the builder agree to a “cap” on these extra expenses.
Doing Home Renovations
It is prudent to confirm the work to be done and the prices for this work in writing, in the form of a contract. The contract does not have to be complex, and protects both the homeowner and the contractor. In the event of a dispute, the contract is helpful in resolving the issue without the need to go to Court. If the dispute cannot be settled between the homeowner and the contractor amicably there are legal remedies available.
