Closing Costs for a Seller
Sellers should expect to pay certain costs associated with the completion of their home or condo sale. These include:
1. Legal fees - typically range from $500 - $1,000 for a sale.
2. Mortgage discharge penalty - most Canadian mortgages may be paid off early, but the seller will pay a penalty equal to the greater of (i) 3 months interest and (ii) the interest rate differential. For floating rate mortgages, the penalty is only 3 months interest. These can sometimes be reduced if the Seller has the right to prepay a portion of their mortgage.
3. Mortgage Discharge Fee - most banks will charge between $250 and $325 to prepare the mortgage discharge documents and an additional $70.50 to register the mortgage discharge on title.
4. Closing Adjustments - At the time of closing, the Seller's lawyer will prepare a Statement of Adjustments which sets out adjustments to the purchase price for items that are pro-rated between the buyer and the seller. The most common examples are property taxes, flat water bills and condominium monthly fees. If the Seller has paid more than its pro-rata share of these costs before the date of closing for the relevant period, the buyer will compensate them. If the Seller has paid less than its pro-rata share, the seller will give the buyer a credit for the payments that the buyer will have to make in the future, but for which the seller got the benefit.
5. Commissions - the Seller's lawyer will pay the balance of commission owed to their realtor (if any). If the realtor has excess deposit, that money will be paid directly to the Seller by the realtor's office after closing. Please note that HST is added on top of the agreed upon commission rate.
Many lawyers will write to the various utilities providers (hydro, water, gas) to advise them that the property is being sold and that the utility should arrange to read the meter on the date of closing. However, we advise clients to contact their local utilities providers in advance to advise of the closing date and to arrange for meter readings - we find the utilities providers more responsive to their own clients. In a condominium, the hydro sub-meter (if there is one) may have to be read by the condominium corporation.
If you are selling a condominium, please advise the property manager of the date of sale. The Seller should pay the monthly common expenses and any assessments due up to the date of closing. Please ensure that any pre-authorized payments of monthly common expenses are terminated in the month of closing, prior to the closing date. If the transaction closes on the first of the month, the Buyer is obligated to make the monthly common expense payment.
The Seller should make all installments or payments of property taxes that are due prior to the closing date. If the Seller pays more than its pro-rata share, the Seller will be compensated by the Buyer through an adjustment at closing. If the Seller makes its tax payment through a pre-authorized debit plan with the City, it should cancel that plan prior to closing to avoid subsequent tax payments being made by the Seller. Please note that at the time of cancellation, the Seller may be obligated to make immediate payment of all taxes due at that time. Again, if the Seller pays more than its pro-rata share, the Seller will be compensated by the Buyer through an adjustment at closing.
A Seller should arrange to cancel their home insurance at the time of closing. We usually advise keeping the house insured for one business day after the scheduled closing date, just in case the closing date is moved by a day.
Information for Seller's Lawyer
Your lawyer will ask for some or all of the following information to assist them to close your sale transaction.
1. A copy of the current year property tax bill (or the prior year if none has been issued in the current year).
2. Confirmation from you (usually verbal) that you have made your tax installment payments due up to the time of closing (or that you are on a pre-authorized payment plan with the City or your mortgage lender makes the payments).
3. The name of the mortgage lender, branch information and mortgage loan number. The same applies to any secured Line of Credit. The lawyer will use this information to obtain mortgage discharge statements and pay off the mortgage or LOC at closing.
4. Is there a hot water tank rental? Who is the provider? If it is Reliance or Oz, there may be special forms that the buyer must sign to complete the assumption of the water heater contract at closing.
5. Is there a furnace or heat pump rental? There is likely a special forms that the buyer must sign to complete the assumption of the water heater contract at closing.
6. If it is a condominium, the contact information for the property manager.
7. Is the home heated by gas or oil? If oil, the tank should be filled right before closing and a copy of the invoice sent to the lawyer, so that the oil can be adjusted on the Statement of Adjustments.
8. Picture ID - usually provided a few days before closing when the clients attend at the lawyer's office to sign closing documents.
9. Void cheque - our firm will deposit the net sale proceeds (after paying the mortgage, commission and legal fees) directly into the Seller's bank account - on the next business day.
10. Keys - the Seller must deliver one set of keys to their lawyer's office, so that it can be sent to the Buyer's lawyer on the day of closing. We advise clients to leave all other sets of keys on the kitchen counter, along with garage door openers, security codes etc.... If a condominium, one set may have to be left with the concierge.
Meeting your lawyer
We typically like to meet with our clients 2 -3 days prior to the closing date to sign all of the closing documents and obtain keys etc.. In the case of a purchase, we will typically ask the Buyer to bring a certified cheque or bank draft in the balance of funds that we will need to complete the transaction (the mortgage funds come directly from the lender). You should expect to bring 2 pieces of valid ID, preferably a driver's license and passport, SIN card or citizenship card. Some lenders will accept a credit card as a second piece of ID. This meeting typically takes 45 minutes to an hour.
It is rarely necessary to be available on the day of closing, however, if you are purchasing a property, in Ontario the keys are usually delivered to the Buyer's lawyer's office and are released to the Buyer once the transaction closes - which is usually between 3: 00 pm and 5:00 pm. The reason transactions rarely close before 3:00 pm is that the Buyer's lawyer will usually not receive mortgage funds until mid-morning and then has to certify cheques and deliver funds to the Seller's lawyer.
A Seller should vacate the property completely before the transaction closes on the day of closing. Once the Buyer has paid for the property and title has passed to the Buyer, it is the Buyer's property and the Seller and all of their stuff should be gone. We recommend being out by 1:00 pm on the day of closing, if possible.
Contact me with any other questions!
Olga Fowell ASA
Harvey Kalles Real Estate Ltd., Brokerage
Occasionally, one can see "For Sale By Owner" signs, and some owners think that selling their own home will not only save them money, but believe they have an advantage over the sellers that have their home listed by a reputable Real Estate sales professional. Before you decide to take on this very important and legally complicated process…remember not even most Real Estate Lawyer's recommend selling your own home yourself in today's market. Here are a few of the reasons why:
1. You are limiting your exposure to potential buyers (less than 10% of what a good real estate broker will generate) which theoretically means your home will take ten to fifteen times longer to sell on the market.
2. The longer a home is on the market the lower the selling price is. Why? Because most buyers think that if the home has not sold after this long... there must be something wrong with the home.
3. The selling/buying process begins AFTER the buyer leaves your home. Most sellers think that all it takes is for someone to see their home, fall in love with the great decor... and the offer automatically will follow. Remember that the buying process begins after they leave your home. If a real estate sales representative does not represent the buyer, and they are looking on their own…they usually leave the home and start to talk themselves out of the buying process. Real estate professionals are trained on how to overcome buyers remorse--a very common occurrence.
4. Because of the limited exposure you will very likely end up with a lower selling price. Remember, in order to generate the highest price possible for your home… selling means exposure. You need the maximum exposure possible, to generate the highest price possible.
5. Most buyers find it extremely awkward to negotiate or even to talk directly with sellers and therefore avoid FSBO properties.
6. Lack of negotiating experience and lack of pertinent information often will result in a lower selling price, or worse yet, a bungled contract and possible lawsuits.
7. The majority of qualified buyers are working with experienced real estate professionals.
8. Many serious buyers will pass by a FSBO home merely because they recognize that it is not in the real estate mainstream, this can some times make them wary.
9. As most local buyers now retain an experienced real estate sales person to represent them as their buyer-agency, you will probably be negotiating against an experienced professional.
10. Expected savings in broker's fees will also be greatly reduced if you offer a selling commission to entice real estate sales representatives to bring potential buyers.
11. If you are planning to use a Lawyer to help you negotiate the offer, then your lawyer's fees will be considerably higher.
12. Only real estate sales representatives have access to the up-to-date market information. News reports cannot approach the timeliness or specificity available to real estate sales people. Further, real estate sales representatives are involved in home sales much more frequently than the average homeowner is. This familiarity leads to a degree of expertise that provides an edge on negotiating and successful selling.
13. You only pay the commission to the real estate broker, if they successfully sell your home at the price you are happy with.
14. Accepting an offer is one thing, ensuring a safe and successful closing is quite another. Real estate transactions usually always have problems on closing. At times, expecting the Buyers and Sellers Lawyer's to fight it out or resolve the problems, can sometimes mean the deal is lost. This is the time that your experienced real estate professional, can be the most important. Your Real Estate professional can act as a great mediator. Lawyers MUST act only on their client's instructions and are not paid to negotiate.