With average detached home prices in Vancouver and Toronto exceeding $1-million, sellers may feel as if they won the lottery. But don’t count on spending every penny – or nickel we should say – of that all on yourself. No matter what your home sells for, there are a number of closing costs to keep in mind that will eat into the bottom line.
The biggest hit will come from realtors’ fees, as the seller pays a commission to both their own agent and the buyer’s agent. Typically, each takes a 2.5% commission on the sale for a total of 5%, but you can negotiate with your agent for a lower rate. You can also note in your listing that you’re paying less than 2.5% to the buyers’ agent, but that’s not always advisable as some agents won’t show a home to clients if they’re not going to get their full cut.
For that reason, many sellers in hot markets are trying their hands at the “for sale by owner,” either on their own, with assistance from companies such as Property Guys or by using agencies that offer discounted commissions of 1% or less, such as the One Percent Guys.
And some food for thought: a 2.5% commission on a $1-million home is a tidy $25,000!
If you sell your home in the middle of your current mortgage term and it’s a “closed mortgage,” you could face some hefty penalties for closing it early – usually three months’ worth of interest payments based on your current terms. You’ll also face prepayment charges if you plan on switching from one mortgage lender to another.
With a transferable (or “portable”) mortgage, you switch your mortgage from one home to the other using the same lender, usually with the same interest rate and conditions you previously had.
If you’re taking possession of your new home before closing on the current one, you’ll also need to get “bridge financing.” This is a short-term mortgage at a higher than normal interest rate that covers the gap of time between paying for your new house and getting paid for the old one.
Even if you successfully sold your home on your own, drafting and reviewing the legal documents is definitely not a DIY activity. It’s not mandatory to hire a real estate lawyer, but it is advisable to have one. As with anything, you can shop around for better rates but expect to pay an average of $1,000 in legal fees.
Taxes and Utilities
Depending on how your utility and property tax bills are set up, you may have to fork over some money on closing or get a bit of a refund from the buyer. It all comes down to whether or not the bills are paid in full on closing day or prepaid beyond that. Either way, your real estate lawyer will sort it out and let you know if you owe or are owed.
The Next House
Of course, unless you’ve decided to leave the housing market altogether and become a renter, you’ll have closing and moving costs for the new house. The biggest difference between selling and closing costs is that the buyer is also responsible for any applicable land transfer taxes. All provinces have some form of land transfer tax or fee, usually based on a percentage of the sale price. Buyers with the city limits of Toronto have the added bonus of the municipal land transfer tax.
Time to Sit Back and Relax!
A nice thought – but not so fast. If you have purchased a new house, the first week usually involves a lot of cleaning and in some cases, buying new furniture. Don’t forget moving costs, mail forwarding and any other last-minute repairs on your old property.
Selling a home can be one of the most stressful times in your life, but it can also be very rewarding, especially if you live in one of the country’s hottest real estate markets. Pat yourself on the back for all your hard work and start making new memories in your new home.