Congratulations, you have purchased or sold a house! Several questions are probably running through your head. Here are some of the most popular ones: When is the best time to move? In the middle of the month. There is less of a chance that your movers will be late, and you will have a better chance of getting a convenient appointment time with a Notary.
You have signed the contract of purchase and sale. The terms have been negotiated and agreed upon. It is a good idea to contact our office right away and advise us about the dates for completion (the day when the property will be transferred into the new owner’s name). You are going to be asked to send us the contract. Simply ask your Realtor to forward the contract to our office.
Once all the conditions are removed from your contract, your Realtor’s office will forward us all the documents we require to start the file. Make sure to advise your Realtor, your Bank, or your Mortgage Broker of where to send your documents. In order to avoid rush fees, allow at least 10 business days between the time our office receives the full package of documents and the date of completion.
Once we receive the documents from your Realtor, our staff will contact you and get additional information. Remember if we have not called you, that means we have not received all the documents from the Realtor yet. Keep in mind the 10 business days deadline, and give us a call or follow up with your Realtor.
We will continue to keep in touch with you by phone or e-mail until the completion date. For example, shortly after the first phone call, you will receive an e-mail from us with an engagement letter. Please read it carefully; it will explain to you what your Notary will do for you and discuss the services that the Notary will not be involved in. There is no need to sign anything yet; we will ask you to sign the letter once you come to our office, just before the completion date. If you are a Buyer, the next time you will hear from us is when your mortgage documents arrive at our office. We will e-mail you a document called Standard Mortgage Terms. This is a package of documents that the bank asks us to deliver to you.
Once your file is ready for you to sign, our staff will contact you to make an appointment. The appointment takes 30 minutes to 1 hour, depending on the complexity of your file. The appointment usually takes place 1-3 days prior to the completion for the Buyers and 2-5 days in advance for the Sellers. During the appointment, the Buyers will be informed of the final amount that they need to bring to us in order to complete the transaction. The Buyers will need to obtain a certified cheque or a bank draft for that amount and bring it to us before the completion date.
On the day of completion, the property will be registered in the new owner’s name. The funds will be transferred to the Seller’s Lawyer or Notary. Funds are usually available to the Seller on the next day after the completion. The client will be notified that the property has been transferred, and the Realtor will deliver the keys to the Buyers.
There are several components to the cost of buying and selling the property.
If you are the Seller you will be paying the following:
- Existing mortgage and any other financial charges against the property
- Real Estate Fees
- Any costs you have agreed to in your Contract for Purchase and Sale
- Adjustment for property taxes, utilities, and rent
- Any outstanding property taxes, utilities and penalties, as well as any strata fees
- Legal fees on the sale of the property with only one mortgage discharge. These costs usually include professional fees, the land title search, registration fees, and miscellaneous office disbursements. GST and PST are usually added to fees and disbursements as with other services and products. Call our office for a quote so that we can ensure you are paying the appropriate amount for your transaction.
- Courier charges
- Capital Gains Tax on any profits from the sale of a non-principal residence. Please discuss this with your accountant.
If you are the Buyer the following are involved in the closing costs:
Third party closing costs. Some examples of closing costs are the fees that the Insurer charges for the insurance binder (around $35-$50), fees charged by the strata management company for a Form B and Form F (from $50 -$70), move-in fees for strata properties, courier charges, and fees charged by the municipality to provide a copy of the tax search ($20-$50). Most lenders will require a Survey Certificate or a Title Insurance policy in order to grant the mortgage. A Survey Certificate is used by the lender to ensure that the buildings on the property do not encroach on adjoining property. If a Survey Certificate is not available, lenders may accept Title Insurance in lieu of a Survey. Title Insurance provides insurance to protect the lender from any encroachments that would have been identified by a Survey Certificate. Title Insurance has some additional coverage that may be important to a Buyer. The cost for a new Survey Certificate or Title Insurance for mortgages less than $500,000 usually ranges from $200 to $250. In the event of a subsequent refinancing, an owner may need to buy a new Title Insurance policy.
Legal fees. It is important for the client to understand what is and is not included in a quote and what might be added as additional charges. Costs that are usually included in a quote are professional fees, land title search fees, registration fees, and miscellaneous office disbursements. GST and PST are usually added to fees and disbursements as with other services and products. Call our office for a quote so that we can ensure you are paying an appropriate amount for your transaction.
Property transfer tax. Property Transfer Tax is a provincial tax applied against purchases of real estate in the province at the rate of 1% on the first $200,000 of the purchase price and 2% on the balance. A partial or full exemption may be applied to First Time Buyers. Please visit the Property Transfer Tax web site in order to check the criteria to see if you qualify for this exemption. The main criteria are that Buyers must be Canadian citizens or permanent residents of Canada; must have resided in BC for a least 12 months or filed income tax returns as a resident of BC for 2 of the 6 taxation years immediately prior to registration of the transfer; and must never have previously owned a principal residence anywhere in the world. The full exemption is available for properties with a purchase price of $425,000 or less, and a proportionate exemption is available for properties with a purchase price between $425,000 and $450,000. There is no exemption on properties with a purchase price greater than these thresholds.
Goods and Services Tax. The GST is a federal tax and is payable on all new or substantially renovated homes by the first occupier of the property. GST is charged at the rate of 5% and may be included in the purchase price or added to it depending on the language of the contract of purchase and sale. Buyers should review the language carefully with their Realtor, as GST is a significant cost. Rebates are available for up to 36% of the GST if the Buyer is going to use the property as a principal residence. The full 36% rebate of the GST is available for homes priced at $350,000 or less. For homes that cost more than $350,000, the rebate is phased out so that no rebate is available for homes valued at more than $450,000 (see GST New Housing Rebate for more information).
CMHC Insurance and the cost of borrowing. If you don’t have a 20% down payment when you buy a house, you will be forced to purchase default insurance. If you have a 20% down payment, this fee will not apply. The most common provider of default insurance in Canada is CMHC. The exact amount of the CMHC premium depends on how much of a down payment you manage to make, and this premium is added to your mortgage total to pay for the insurance. If for some reason you default on your mortgage and the bank isn’t able to recover enough to cover the entire outstanding mortgage, CMHC will pay the difference, and as an insurance’ company, CMHC will sue the borrower for the value of any payout it makes on the insurance policy. The practical result of this that the borrower is usually forced to make an assignment into bankruptcy. 20% is the absolute minimum for avoiding CMHC insurance when borrowing from a chartered institution. Individual lenders may have more stringent requirements.
For more information visit the CMHC web site.
Strata fees are charged and paid monthly on the first day of each month. The monthly strata fees will be pro rated between the Buyer and the Seller, with the Buyer reimbursing the Seller based on the number of days between the date of adjustments agreed to in the Contract of Purchase and Sale and the last day of the month.
Rent is adjusted on a similar basis with the Buyer receiving a credit for a portion of the rent. In the case of a continuing tenancy, the Buyer will receive a credit for the security deposit with accrued interest, as the Buyer will be responsible for reimbursing the correct amount when the tenant vacates at a later date.
Municipal property taxes will also be adjusted. Property taxes are based on the calendar year and are payable usually at the beginning of July. The adjustment between the Buyer and the Seller will therefore vary depending on the time of year when a transaction closes. The tax adjustment is one of the more complicated adjustments to understand, but it is based on the parties being responsible for any costs associated with the property only for the period of time in which they are in possession.
These adjustments are set out in a document normally referred to as the Statement of Adjustments, and there is one prepared for each the Buyer and the Seller. The Buyer’s Statement of Adjustments sets out the Buyer’s total costs and identifies the sources of funds to pay these costs. The sources of funds will include the initial down payments pursuant to the Contract of Purchase and Sale, the Mortgage proceeds, and any credits in terms of rent, tax, or other adjustments. The final line item on the Buyer’s Statement of Adjustments will identify the amount of money required to complete the transaction. The Buyer will need to deliver to our office the balance required to complete the purchase, in trust, by certified cheque or bank draft. The Seller’s Statement of Adjustments sets out the Seller’s total cost, and the final line item will identify the amount to be paid to the Seller’s Notary Public or Lawyer on completion.
The Mortgage requirements for non-resident Buyers are different than for resident Buyers. Non-resident buyers are required to open an account at a local bank. Please contact your Mortgage specialist for details on the financing guidelines for non-residents.
Additionally, non-residents are subject to a 25% withholding of taxes on the gross rental income. Administrative rules require that the owner or agent remit these amounts to the Canada Revenue Agency. A non-resident owner may file a special form to have the withholding taxes reduced, which essentially treats the non-resident as a resident with respect to the rental income. This form needs to be filed before January 1st of each year. For further information, please contact a tax professional.
A non-resident Seller of property in Canada is subject to the Capital Gains Tax. A non-resident Seller should retain the services of a tax professional to assist in obtaining a Clearance Certificate. This process can take six to eight weeks. To avoid liability for non-resident Sellers’ unpaid taxes, purchasers must withhold a portion of the sale proceeds until a non-resident Seller has provided a Clearance Certificate from the Canada Customs and Revenue Agency. The holdback can be 25% -50% of the purchase price depending on the use of the property. Under circumstances where the holdback would not leave sufficient funds to pay out an existing mortgage when the sale closes, a Seller can claim hardship to expedite the issuance of a Clearance Certificate. A Clearance Certificate will only be issued once the tax is paid. The Canada Customs and Revenue Agency will review the particular sale transaction to determine whether or not capital gains tax is payable but will also require payment of any other taxes outstanding or payable by the Seller.