As you work through the process of purchasing a home, you will often hear references to the term “closing costs” or something similar in nature.  That terminology is intended to refer to the costs that a party needs to consider, in addition to their down payment funds, when purchasing a property.  Those could include items such as the following:

• Home Inspection Costs
• Appraisal fees
• Deposit
• Property transfer tax
• Home insurance costs
• Legal frees and expenses
• GST (if applicable)
• Property tax adjustments
• Title insurance premium
• Utility adjustments and set up costs

All of these various items add up and are important for a buyer to plan for as they make decisions on what type of property to purchase, how much to spend on the property, how much to borrow, and how much additional money will be required to complete the transaction.  In most cases, these expenses are incurred during the mortgage approval process, shortly before closing, or on closing and buyers should ensure they will have access to the funds they need at the appropriate time.  For example, the home inspection costs would generally be incurred directly by the buyer and paid to their chosen inspector and would often need to be paid before subjects are removed.  During the mortgage approval, the buyer will also need to pay for an appraisal of the property.  In some cases, this cost may be paid directly by the buyer to the appraiser, or, in other cases, it would be deducted from the mortgage proceeds when advanced for closing. 

While not so much a closing cost, the buyer would want to be aware of the deposit amount and the timing for that payment.  These funds would most often be paid through the buyer’s realtor and the timing would be based on the contract.  These funds would be held and be used as a credit towards the funds the buyer needs for closing.

Property transfer tax would be due and payable by the buyer at the time of closing.  The lawyer or notary assisting the buyer would collect those funds, along with the down payment funds, and remit the property transfer tax directly.  While there are some exceptions and exemptions available (such as first-time homebuyers with a property value of under $525,000, and newly built homes with a value under $800,000) property transfer tax on residential properties is generally calculated based upon fair market value as 1% on the first $200,000 of value, 2% on the amount above $200,000 to $2,000,000, 3% on the amount above $2,000,000, and an additional 2% on the portion over $3,000,000.  There is also an additional tax of 20% for foreign owners.  More information, including the government’s calculator, can be found at Property transfer tax – Province of British Columbia (gov.bc.ca).

Property insurance costs are also an item that should be considered as it is recommended, and frequently required, that the homeowner have arranged property insurance effective as of the closing date.  In some cases, the premiums would be payable in a lump sum while other insurance policies can be paid on a monthly basis.  These would typically be paid before closing by the buyer to their chosen insurance company.  As well, the buyer may be required to provide deposits to set up utility accounts which should be considered as well.  These would be paid directly to the utility provider.

As part of the closing funds required by the lawyer or notary assisting the purchase, there would also be the legal costs, GST (if applicable on the real estate transaction), property tax/strata fee/utility adjustments and a title insurance policy.  Some of these costs are items that are prorated between the buyer and the seller, while others, such as legal costs, GST and title insurance, would be expenses of the buyer.  Most lawyers or notaries will ask the buyer to provide their closing funds (including these closing costs, property transfer tax and down payment funds, but less the deposit paid) in a guaranteed form such as a bank draft, direct transfer or wire transfer.

Planning ahead and working through specific financial requirements carefully can help ease the stress of the process knowing there is a plan in place for the various expenses that will need to be paid.  A buyer should consider what these particular costs will be and consult with their chosen professionals to ensure they have a plan in place for the financial aspects of completion.

Author: Una Kuzio

This information is general in nature only. You should consult a lawyer or appropriately qualified party before acting on any of this information. This information should not be considered as legal advice. To learn more about your legal needs, please contact our office at (250)448-2637 or our lawyers practicing in the area of real estate at the following:

• Una Kuzio: una@touchstone.law