In my continuing series, First-Time-Buyer Fridays, I answer a common question from a first-time buyer. If you have a question to submit, first-time-buyer or experienced investor, put one in the comments below, or fire me an e-mail at Tim@TimAyres.ca.
Q. What additional closing costs are associated with buying property in Victoria, Sooke, or anywhere else in British Columbia?
A. “But wait! There’s more!” This is how it can feel sometimes when you’re buying your first home. It seems sometimes that there is a big vacuum cleaner that is after your money. Welcome to closing costs.
When many first-time buyers start looking at homes, they often very carefully examine their credit, their savings, and calculate out to the penny what their anticipated monthly payment will be. Often, a large oversight is that they do not calculate closing costs or are completely unaware that they exist or just how much money they’ll need.
The largest chunk of the closing cost for most first-time buyers in BC is amount that you have to spend on legal fees. In order to register your mortgage on the title and register the title in your name, you must use either a lawyer or notary public to act on your behalf to convey the property from the sellers to you (often called conveyance or conveyancing).
There are advantages and disadvantages to using either a notary or lawyer. I spoke to Notary Public Sabrina Hanousek of Notaries on Douglas about her side of the story. Recently, Sabrina did an absolutely outstanding job and went above and beyond the call of duty for some of my clients who had a difficult situation arise at closing.
Sabrina says that people who choose to use a notary usually do so because they charge less than a lawyer, which is often the case, but not always. What they find out, however, is that notaries tend to have a lot of experience with real estate conveyance, because that is the bulk of their business in many cases. She also finds that notaries are more “hands-on” and rely less on support staff, and meet directly with the clients rather than delegating this task to secretaries. If things go wrong, she has access to experienced lawyers who can try and fix things. Sabrina charges $795 for a purchase, and $495 for a sale, all disbursements and taxes in. Some items like strata forms would be extra, and a purchase and a sale would sometimes be eligible for a small discount.
I spoke to Rob Connolly of Victoria law firm Jones Emery Hargreaves Swan about how a lawyer is different from a notary. While a lawyer’s fees are sometimes higher, they can deal with issues directly if they come up, rather than having to refer the file to a lawyer if the client used a notary, if, say, a dispute arose about something in the contract. There are also lawyers who specialize in nothing but real estate law, and would be very well equipped to handle any conveyance file. Most people that choose to use a lawyer to handle their real estate transactions do so for peace of mind, and they may already have a lawyer for other legal matters. Rob’s firm charges $800 for a purchase, plus $300-$500 for disbursements (documents, copying, etc). For a sale, it’s $600 plus $50-$75 for disbursements. A $200 discount is offered if the client does both a sale and a purchase.
It’s best to get a referral from a friend or your real estate agent and to call around to get a few different quotes.
Another source of closing costs are any taxes payable on the purchase. GST is not payable on resale housing, but is payable on new housing, although it’s often included in the purchase price. The provincial property transfer tax (PTT) is calculated at 1% on the first $200,000 and 2% on the balance of the purchase price. However, most of the time, first-time buyers are exempt from paying it.
Depending on your financial institution, you may have to pay for an independent appraisal of the property you’re buying. Often, a mortgage broker will pay for the appraisal, that would be a good question to ask before deciding on who to get your mortgage from. If you have to pay, budget around $300-$500 for this.
Again, depending on the financial institution and type of property, you may need to have the property surveyed. In the Contract of Purchase and Sale, the seller has to provide a survey if it’s available, but often, especially with older properties, the survey is gone or outdated. Surveys can cost over $1000, but most financial institutions will accept title insurance instead, which insures the lender against depreciation caused by something that an up-to-date survey would discover, for example, that the house is not where it is supposed to be on the lot due to an error by the builder. A title insurance policy costs around $400.
Last but not least, you’ll need homeowner’s insurance. If you’re buying a condo, you’ll just need contents and liability insurance. These policies cost $300-$500 per year.
So, all told, you’ll want to set aside $1700-$2200 in addition to your down payment to cover closing costs. Remember this when calculating how much you can afford. And don’t forget a hundred bucks or so for pizza and beer for your friends when they help you move!
If you have any questions about buying your first home, or any real estate matter, call me any time at 250-885-0512 or e-mail Tim@TimAyres.ca. Be sure to check out the other First Time Buyer Friday posts!
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