This article has been updated from a previous version.
With average detached home prices in Vancouver and Toronto well above $1 million, the windfall from a sold house may have sellers feeling as if they won the lottery – particularly if they’re downsizing to a smaller place or moving to a less expensive market.
If you’re in the fortunate position of having just sold your home, there are a few things that you’ll want to take care of before planning your next big splurge. From closing costs to expenses for your next home, there are some big bills to pay first.
Changes to home insurance
When you move, you leave your home behind – and with it, your home insurance policy. If you’re moving within the province, you’ll likely have to change your insurance policy to fit with your new home, which could be less than your existing premium, or more. However, if you’re moving out of the province, or taking the opportunity shop around for a new insurance provider, you’ll likely have to cancel your policy outright and pay a mid-contract cancellation fee.
Read more: How to cancel your home insurance policy
Legal fees
Even if you successfully sold your home on your own, drafting and reviewing the legal documents is definitely not a DIY activity (unless, of course, you’re a lawyer). It’s not mandatory to hire a real estate lawyer to tie up loose ends related to the property and the title registration, but it is advisable to have one. Thankfully, hiring a lawyer to complete the sale as the seller is likely going to be less expensive than as a buyer – you can expect to pay between $750 to $1,500 in legal fees, depending on the specifics of the transaction.
Mortgage fees
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.
Realtor’s fees
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 these fees can also vary by realtor – you can expect to pay anywhere between 3% and 7% on the transaction.
If you want to keep your real estate commission rates as low as possible, you can ask your realtor if their commission rate is flexible and try to negotiate. 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. However, this route will likely cost you more in the time and effort to host showings and answer questions from potential buyers, without being able to draw from the insights and expertise from professional agents.
However, the savings could be worth it for you: a 2.5% commission on a $1-million home is a tidy $25,000!
Read more: How much are real estate commission rates in Canada?
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.
Your 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.
Sit back and relax? Not so fast
Moving house isn’t easy – or cheap. If you have purchased a new house, the first week usually involves a lot of cleaning and in some cases, buying new furniture and undertaking minor upgrades or repairs on the new place. 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 lucrative, especially if you happen to be 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.
Read next: What are real estate contingencies?
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