WHAT DOES IT COST?
Quite frankly, it is very difficult to tell you up front what the acquisition is actually going to cost. There are many variables that can impact on the final cost. One of the reasons that you have to hire a lawyer to complete a real estate transaction is because it is more than a little bit complicated, as opposed to purchasing a refrigerator. Explaining all of the variables that could affect the cost would require that you take a course of study in the law of real property.
However, the reason you need a lawyer to purchase real estate is two-fold. First, it is because this is an area of law that is full of potential problems. Second, only lawyers can access the electronic registration system that allows a new deed to be registered.
It is, in fact, ironic that real estate is one of the areas of the highest claims for lawyers’ errors and omissions insurance. You would think that if we can figure out who owns a car by running the VIN number of the vehicle, we should be able to figure out who owns a piece of real estate. After all, you can drive a car across the country, repaint it, and change the plates, yet we always know who the owner of the car is by the VIN. Real estate doesn’t go anywhere, you can’t change it or move it, yet it is sometimes more difficult to identify the owner.
More importantly, much of what you need protecting from on a purchase has nothing to do with the real estate, itself. You want to make sure that you are not picking up the tab for unpaid taxes or liens. You want to make sure that there are no work orders or compliance orders against the property or its components that you could end up picking up the cost for. You want to make sure that any judgments attaching to the land are paid for by the old owners, or you could become liable for them.
The adage “buyer beware” still applies to real estate, and it is up to you as the purchaser to do your own due diligence to ensure that you are getting what you paid for when you agreed to buy the place. This is what your lawyer is for.
We quote base flat rates for real estate, as most lawyers do. However, we must reserve the right to increase our fees if we encounter problems with the property or the other party prior to closing. Our base quoted fee is based upon the presumption that there will be no problems. If problems arise, we have to do our job. Our job is to ensure that the problems are fixed before you complete the purchase, or that you are able to walk away from the deal if it is going to become a liability that the vendor won’t fix. Situations like this are when our skills are needed most, and our fees are truly earned. The amount of the additional fee will be dictated by the time it takes to fix the problems, should they arise. Otherwise, our flat fee rates will apply, if no problems are encountered. Our flat fee rates are competitive.
Many lawyers, like myself, don’t charge for quick telephone advice for existing clients. After that, the cost is related to the time involved and the complexity of the matter. Frankly, when it comes to a real estate transaction, the purchase price also comes into play. This is similar to real estate agents who charge a percentage of the purchase price. While the percentage is negotiable, the real estate agents all pretty well charge the same percentage.
If you are shopping around, looking for the cheapest lawyer, remember two things: first, you get what you pay for!; and second, you have to compare total costs that include fees, office disbursements, taxes, registration fees, etc.. Some lawyers advertise low fees for legal services, but then add in all sorts of costs as disbursements.
When you are budgeting, you should also remember that there are often other expenses to be considered.
You will pay a deposit with your Offer to Purchase. This deposit will be deducted from the purchase price as money already paid. There is no set rule as to how big the deposit should be, but some vendors think the bigger the deposit, the more serious the offer.
Your down payment is the amount of money you have available from your ‘own pocket. This is your equity in the property, being the remainder when you subtract the balance owing on your mortgage from the value of the property.
You will also have the following costs:
- Fire Insurance: you must have fire insurance on the property effective the day of closing. You will need to prove to your mortgagee that you have protected them under the policy of fire insurance before you get the mortgage money;
- Realty Taxes: This will be an adjustment on closing. If the vendor has paid more than his or her proportionate share of the current year’s taxes, you have to add this payment onto the purchase price o closing to reimburse them.
- Fuel Oil: Similarly, a vendor who leaves a full tank of oil, or propane, can charge you for it on closing.
- Utilities: You will have to have the hydro, gas, water and sewer accounts put in your name. If some of these items have been prepaid or if there are rental charges prepaid (like for a hot water tank), there may be adjustments added to your costs on closing.
Placing a Mortgage
If you are one of the vast majority who have to get a mortgage, you should find out from your bank, mortgage broker or lender, which of the following may be required:
- An up-to-date- survey. If there is not a good and recent survey plan showing the buildings and improvements as they are, then you may have to get one or get title insurance. Cost varies but for a 1 acre property budget $800-$1,000.
- Title Insurance. This is often accepted by lenders as an alternative to a new survey. Budget $350. The price of title insurance is tied to the purchase price in a way. I use Stewart Title Guaranty Company almost exclusively. Check out their site, http://www.stewarttitle.ca/, for more great information.
- Appraisal. Budget $350.
- Home Inspection. Budget $300.00-400.00 AND GET ONE!!.
- Broker’s fees, Lender’s Bonus and CMHC fees all cost money. Be careful to clearly understand them before you sign a mortgage commitment. Be sure the mortgage broker explains mortgage default insurance and the cost. This is what CMHC Insurance is. It is the insurance that will pay the bank the amount owing on the mortgage if you default on payments. The insurance company will then come after you for repayment. The cost is a percentage of your purchase price. The cost can usually be rolled into your mortgage, which is often convenient, but you should look into the long term benefits of paying a greater downpayment now, with less or no CMHC fees, compared to the cost of financing this additional amount over such a long period of time. If you add the CMHC insurance to your mortgage, it means you increase the amount you borrow. If you increase the amount you borrow, you increase the amount you have to repay. If you increase the amount you have to repay, you increase the interest cost and the loan becomes more expensive.
One of the things that sometimes happens when I sit with purchasers and tell them the amount that I need from them to close, they are taken aback because the have assumed that I will be getting 100% of the principal amount
Harmonized Sales Tax (HST):
This is a very expensive additional cost if it is applicable. The fact is that HST applies to ALL real estate purchases, UNLESS they fall into certain exemptions. The biggest exemption is “used residential”. If you are buying a house from someone who lived in it before you, you probably do not have to worry about HST. However, if you purchase a new house, the HST will be applicable. Usually, the HST is worked into the purchase price by the builder and/or developer, and there are special forms that must be filled out, but the agreed upon price is net of the HST.
But if you are buying commercial property, or farmland, be aware that HST is applicable. Of course, if you are buying such a property, you are probably going to be carrying on a business there, yourself, and you will need to be an HST registrant. There are ways that we can close with purchaser undertaking to be self-assessing for HST purposes, so long as the purchaser and the vendor are both registrants. This allows us to offset input tax credits against the HST that would otherwise be due on closing. However, the facts of each circumstance would have to be reviewed and discussed.