Hello everyone, this is Paul Choi from the Juris Notary office. I would like to talk about perhaps something that many wonder about but is rarely openly talked about: actual cost involved in purchasing and selling a home. The first part we will focus on purchasing costs and the second part will focus on selling costs. Before I begin I need to emphasize that I will only discuss typical residential transaction costs in a very general way; so please do not rely on this calculation but to provide awareness of some of the expenses and costs that are involved when buying and selling a home. Also, purchasing or selling a commercial, business or atypical home may yield more or fewer costs. Please call our office at 604-416-0211 for consultation on your specific case.
I sometimes see clients make a simple calculation to budget for the purchase of their home, especially when it is their first time. Some would take the purchase price of their home, minus the security deposit and the mortgage and the rest is the only cost they need to budget for. Unfortunately, there are many other costs involved in purchasing a real property. It is crucial to have a realistic idea of all the costs and expenses involved in purchasing a home to ensure you are not panicking due to a shortage of funds a day or two before the completion date.
To provide perspective on the properties, I will use $700,000.00 property as an example throughout the column. The below is the summary of potential fees and costs involved in purchasing a home in the Lower Mainland:
Property valued at $700,000.00
- Basic Property Transfer Tax $12,000.00 ($140,000.00 additional PTT)
- GST $35,000.00 (only if buying a new or substantially renovated home)
- Property Tax/City Utilities roughly $4,000.00 (or some portion thereof)
- Monthly Strata fee and move-in fee $50-200 (if strata)
- Bank fees roughly $0-4000 (tends to be higher if you are getting a mortgage from a private lender)
- Title Insurance $100-600
- Home insurance or content insurance $200-3000
- Legal fee + disbursements $1200-1700
Estimates total: $17,550.00-$227,500.00
Property Transfer Tax
One of the biggest cost that is overlooked are the potential taxes involved in purchasing a home. There are 2 types of taxes that may be applicable when you purchase a home in BC: Property Transfer Tax (PTT) and GST. There are some exemptions available for PTT and for details, please refer to my previous contents. The basic PTT is currently 1% for first $200,000.00 and between $200,001.00 to $2,000,000.00 is 2%, between $2,000,001.00 to $3,000,000.00 is 3% and anything higher than $3,000,000.00 is 5%. So for a property that is $700,000.00, $12,000.00 is due for basic PTT. Of course, if you are a foreign national, then there is 20% additional PTT you have to pay, which would be an additional $140,000.00 on top of the basic PTT.
GST – only for new or substantially renovated property
GST is something that we are probably familiar with, since it is applicable to most consumer products that we buy day to day. Real Estate is also a product that GST is applicable on, if you are purchasing a new or substantially renovated home; used homes are exempted from GST so you do not need to worry about GST when buying a used property. GST as most will know is 5% – this means if you are buying a $700,000.00 new or substantially home, that is additional $35,000.00 in GST that you have to pay. There is a rebate available that you may qualify for, but that would most likely a small portion and you still should budget for the full GST amount if you are buying a new or substantially renovated home.
Property Tax and city utilities
Depending on when you purchase your home, you may not have to pay much of property tax or city utilities at the time of completion. However, you usually have to pay some portion of the property tax and/or utilities when you complete your purchase, as the seller may have paid the entire property tax off for the year and you have to reimburse them for your portion. Even if you did not have to pay anything or get credited from the seller for their portion of the property tax for the year, it is an expanse you should be aware of and budget for. Each city is different on how much you will have to pay for property tax and it is not solely dependent on the assessed value, as I discussed in my previous column; however, if your property is $700,000.00, you would need to budget for around $4,000.00 for property tax.
Monthly strata fee and move-in fee
If you are purchasing a condo or a townhome that has a strata company managing the property, you are most likely paying a monthly strata fee. Depending on which day in the month you are moving in (or adjustment date set on your contract) you may pay the strata fee on daily rate and may require to pay the next month’s strata fee in advance. As part of the strata rules, they may require you to pay a move-in fee upon your purchase. This is typically charged by the strata to cover their fee to update the system and updating documents that’s required with a change of owners in a strata unit.
Bank fees and title insurance
Major Banks either has no bank fees or very low fees that is negligible. However, with the new stress test and increased difficulty of getting a mortgage approval, many clients are having to turn to non-major banks or private lender for mortgages. Some lender fees can be as high as $4000 in addition to a lender’s legal fee. Please consult your mortgage representative or broker for full details on the fees involved.
Home insurance or content insurance
If you are buying a strata property, most likely your insurance that covers the structure of the property is maintained by the strata and is part of the monthly strata fee you pay. However, if you are purchasing a detached home and getting a mortgage, your lender will require you to have a valid home insurance in place as of the completion date. Your insurance cost will obviously vary greatly depending on the property and coverage you want to get so please consult your insurance agent for the full details.
Legal fee + Disbursements
Legal fee for typical purchase with a mortgage is likely to be around $500-$1000, depending on the law/notary firm and what type of transaction is involved. Disbursements are other costs involved for the law/notary firm to carry out their work. This would typically involve fees charged by the land title office to do searches, registration, municipal tax searches, bank fees, courier, and can even include other office-related expenses. A typical fee that you pay to a law/notary firm with taxes and disbursements can range from $1200-1700.
Realtor Commission
Realtor’s commission for both buyer and seller realtors is typically paid by the seller in BC so a buyer do not have to budget for this cost.
The above calculations and estimate will vary greatly depending on your specific transaction and potential exemptions and extra work that may be involved. The above information is not to be used as a bench mark but simply to alert you to the fact that there may be other costs that you may not have factored in when budgeting for your real estate purchase. It is absolutely crucial to have a realistic idea of what the cost is to purchase a property so that you have a stress-free and surprise-free experience when purchasing a home.
If you have further questions, please do not hesitate to contact our office and speak to myself or any of my friendly staff.
- This is for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind.