Understanding Some Buyer Closing Costs

Dated: April 6 2021

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If you’ve decided to buy a home. It’s important you understand some of the potential closing costs, in addition to the price you’re paying for the property.

Most people who are in the market for a new home are aware of the costs associated with purchasing a home and moving. However closing costs can be expenses that may be overlooked, especially for first-time home buyers. The amount of the closing costs depends on where you live, the type of home, and the type of mortgage. In most cases they can equal anywhere from two to four percent of the purchase price of your home. So before planning your home purchase budget, here are some hidden expenses that you may want to include. 

In general there are two types of closing costs; recurring and non-recurring. Recurring costs include things like fire and flood insurance, property taxes, and mortgage insurance. These are expenses that become part of your monthly budget. Non-recurring costs are one-time costs that are associated with closing a home purchase. In most cases make up the bulk of the extra expenses. Non-recurring closing costs usually include things like inspection costs, property transfer tax, GST and legal fees etc; to close the deal.

Inspection Costs Before Removing Subjects:

Home Inspection. A home inspection is a report on the condition of the home. This includes structural and moisture problems, as well as electrical, plumbing, roofing and insulation. Generally range $350-$650 depending on age, size and the complexities of the inspection.

Septic tank. If the house has a septic tank, it should also be tested to ensure it is in good working order. Once again, you can negotiate the cost with the previous owner and list it in your Offer to Purchase. 

Water Tests. If the home has a well, you will want to test the quality of the water ($225-$325) and ensure there is an adequate supply, as well if the water is potable. You can negotiate these costs with the previous owner and list them in your Offer to Purchase.

Oil Tank. If a house was built prior to the 1960`s, it’s recommended to have the land scanned for the presence of any underground oil storage tank. Generally billed per hour, so cost depends on lot size. (if this hasn’t been done before)

Condo Documents Review Buyers are provided these documents to review themselves or can hire a professional licensed under RESA. For helping buyers understand the Strata Property Act, Depreciation Reports, Financials, Bylaws, and other related documents. (Price ranges depending on level of service)

Closing Cost Fees

Legal Fees & Disbursements which account for the review, preparation and recording of all official documents. ($800- $1500)

Adjustments – pre-paid property taxes and utility costs, this all comes down to the closing date

Title insurance – protects against losses in the event of a property ownership dispute.  (not required)

Survey Certificate Lenders may require a survey of the property. The fee ranges and is typically $500. (if required)

Mortgage – Lenders may charge a mortgage application fee, which will vary depending on the lending institution and requirements for the mortgage. If your putting less than 20% down, CMHC Insurance is required (mortgage default insurance).

Home Insurance Premium – Most lenders require property buyers to carry home, fire and extended coverage insurance and liability insurance. This is calculated annually or possibly monthly depending on the provider.

Closing Cost Taxes

GST Sales Tax – In B.C., GST is a 5% federal tax that is ONLY payable on the sale of brand new properties in B.C. This can be on a presale high-rise condominium or on a newly-built home.

GST Sales Tax Rebate eligibility: If you purchase a home with a sale price of $350,000 or less, you are eligible to a 36% rebate on the 5% GST you pay. This rebate is reduced on properties ranging from $350,000-$450,000 and anything above $450,000 is not eligible for any GST rebate.

Property Transfer Tax (PTT) Calculated as a percentage of the purchase price of your home working on a sliding scale.

  • 1% on the first $200,000 of the purchase price
  • 2% on the fair market value between $200,000 and $2,000,000
  • 3% on the  fair market value above $2,000,000
  • 5% on the fair market value of the home above $3,000,000

 For example: on the sale of a property valued at $675,000, you would be charged 1% on the first $200,000, which is $2,000. The remaining value, $475,000, would have a tax rate of 2%, which would equal $9,500. Add both of those values up for the total PTT which, in this case, is a combined total of $11,500.

Property Transfer Tax Exemptions Fair market value of $500,000 or less if registered on or after February 22, 2017. In Victoria this could apply to a new apartment in a newly built condominium building. (check link for other qualifications)

Depending on your particular circumstances the actually closing fees may include just a few of these costs. It may even include ones that are not listed here. Purchasing a home is a huge investment and expense. Getting a clear picture of the cost before signing your name on the dotted line is important.

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    Kim Kissinger

    Real estate is about service first "this is your journey". Buying or selling a home with Kim, you can expect excellent professional & personable service. ....

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