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. In the first part I talked about purchasing costs and this second part I 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 for sale of their home, especially when it is their first time. Some would take the sale price of their home, minus the current mortgage balance and believe the rest is their profit. Unfortunately, there are many other expenses and deductions involved in selling a real property. It is crucial to have a realistic idea of all the costs and expenses involved in selling a home to ensure you are not disappointed or worse, need to pay more money to cover all the costs of selling a property.
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 selling a home in the Lower Mainland:
Purchased price $600,000.00 2 years ago
Sale price $700,000.00
- Mortgage $420,000.00 (70% of purchased price as an example)
- Mortgage prepayment charge $6000.00 (rough estimate – 3 months of interest)
- Property Tax/City Utilities roughly $2,000.00 (if not already paid for the year or some portion thereof)
- Realtor’s commission $26,250.00 (7% on first $100,000, 3% on rest $600,000 + GST)
- Strata move-out fee $50-200
- Legal fee + disbursements $500-800
- Capital gain tax – $0-$25,000 (very rough estimate if not principal residence)
Estimates total: $454,800.00-$480,250.00
- Return of down payment $180,000.00
- Cost and expenses during the purchase – $17,500.00-$227,300.00
Potential profit: $-187,550.00 -$47,700.00
Mortgage and prepayment charge
You will know how much you owe for the balance of your mortgage but depending on what mortgage product you got, you may have to pay a prepayment fee. If you got a line of credit or flexible mortgage, then you may not have any prepayment but if you had a fixed term mortgage, then you may have to pay prepayment charge. This charge is typically 3 months’ worth of interest you pay for your mortgage so you will need to calculate to see what that would be.
Property Tax and city utilities
Depending on when you sell 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 sale, as this is typically the case if your sale completes before July in a year. 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.
Realtor’s Commission
Realtor’s commission is typically calculated as 7% on first $100,000 and 3% on the rest. But this may vary based on how you entered into the listing agreement with your realtor. Additionally, the realtor’s commission is GST payable, which is something that catches many clients by surprise. So using the $700,000.00 sale price, the commission will be $26,250.00, including GST. Speak to your realtor about the commission fees if you have any further questions.
Strata move-out fee and other outstanding fees
If you live in a condo or a townhome that has a strata company managing the property, you are most likely paying a monthly strata fee. As part of the strata rules, they may require you to pay a move-out fee upon your sale. This may vary from $50-$200. This is typically charged by the strata to cover their fee to update the system and updating documents that are required with a change of owners in a strata unit. Sometimes, there may have been some expenses that have been voted and passed by the strata that you may not have been aware of that becomes due before you move out. Also, there may be a penalty that is due for breaching a strata rules that you were not aware of. These are also something you need to confirm with the strata, as some special levy could be a significant amount.
Legal fee + Disbursements
Legal fee for typical sale with one mortgage discharge is likely to be around $400-$800, 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, discharge of mortgage, 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 $600-1000.
Capital gain tax
When you sell an investment property where you did not occupy as your principal residence, capital gain tax may be applicable. This may depends on many factors but can include the amount of capital gain, your current residency status and income level. This can also be a significant amount so please consult your accountant for an advice. It is a good idea to talk to your accountant in the early stage of your sale so that you are not caught by surprise by the tax you have to pay, especially if you were relying on a profit that is made from the sale to purchase another property right away.
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 benchmark but simply to alert you to the fact that there may be other costs that you may not have factored in when calculating your profit from a real estate sale. It is absolutely crucial to have a realistic idea of what the cost is to sell a property so that you have a stress-free and surprise-free experience when selling 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.