The Cost of Closing in Real Estate

Buying a home is an exciting milestone, but it’s important to understand all the costs involved to avoid any surprises at closing.

Closing costs are the additional expenses incurred beyond the property’s purchase price. Understanding and budgeting for these closing costs is crucial for prospective homebuyers to avoid any financial surprises at the end of the transaction. Buyers should work closely with their real estate agent or lawyer to ensure a smooth and transparent closing process.

This blog post is going to walk you through the costs you can expect before, during, and after closing.

Heading to the market? Download our Buyer’s Guide for more advice.

Before Closing Costs

Sending the Deposit

Once you’ve found your home and have a conditionally accepted or firm offer, the next step is putting down the required deposit. A deposit is an important step for the buyer because it shows they intend to execute the transaction, serving as a marker of “good faith”. The seller, on the other hand, benefits from knowing that the buyer is partially invested in the transaction’s outcome.

Deposits are sent to the Listing Agent’s brokerage by wire transfer or certified cheque. Each Brokerage will have its own method for accepting and storing the deposit. Royal Lepage, for example, uses a Trust account. This account holds the deposit until it is returned to the buyer upon successful completion of the transaction.

If you are in the market for buying a home and curious about deposit information, connect with a local Real Estate Agent. In the internal MLS system, Realtors can view the amount withheld for a deposit under the listing information for a particular address. Your Realtor can relay that information to you so that you can anticipate the next steps needed to secure that home.

Home Appraisal

A home appraisal is a common step clients and their Realtors take before closing on a home to ensure the home’s price matches its market value. This protects both the buyer and the lender. Buyers will have a home appraised to avoid overpaying. Appraisals also allow for negotiations, should there be an issue with the current value statement that results in a significant decrease in market value. From there, the buyer can decide whether they are willing to make a compromise with the seller on the issue or cancel the transaction. Lenders will require an appraisal to determine that a home mortgage is properly secured.

Home Inspection

The last element buyers and sellers can anticipate when closing on a home is the possibility of a home inspection. Home inspections are added to offers when the buyer or the buyer’s agent might feel the need to have the property examined. Inspections have led to the conclusion of structural and cosmetic issues and can be a powerful negotiation tool for additional due diligence. Home Inspection dates will be set up by your Realtor.

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On Closing

Land Transfer Tax

Land Transfer Tax is a mandatory provincial fee paid by property buyers at the closing of a property. The tax is calculated based on a fair percentage of the sale price.

In Ontario, the use of a sliding scale makes the process easy and calculated. If buyers are interested in learning more about the land transfer tax for a potential property, they can easily access the Land Transfer Tax calculator, which provides an educated estimate of the tax cost.

Interested in learning more about the land transfer tax? Check out our blog post on the topic.

Mortgage Insurance

Mortgage Loan Insurance is mandatory in Canada for homebuyers who put down a deposit of less than 20%. This policy enables Buyers to purchase properties with as little as 5% down on mortgages for homes under $500,000. Mortgage Insurance can also affect interest rates, allowing for lower rates.

Lawyer Fees

Each time a property closes, your Real Estate Agent will ask you about your Lawyer selection. The Lawyer handles the legal aspects of the transaction, ensuring that title transfers to the new owner at closing. Lawyer fees are an inevitable part of the transaction and something we encourage buyers and sellers to plan for in advance.

Your Lawyer will receive all of the Offer paperwork from your Real Estate Salesperson once you have shared your Lawyer’s information with them. From there, your agent will connect your Lawyer to the Cooperating parties’ lawyer (the purchaser or the seller). Each legal party will facilitate the transaction until its completion. At the time of closing, the lawyer’s office representing the seller will release the property access instructions to the buying party, such as a lockbox or door code, and officially close the transaction.

TIP: A strict rule of thumb for closing costs is to anticipate putting away 1-4% of your home purchase price

After Closing

Moving Expenses

There are hidden costs that come with moving, and we ensure our clients are prepared for them. The first hidden cost is a moving truck. Hiring a pro is always our first recommendation because moving heavy furnishings, appliances, and your personal belongings is not easy. There are quite a few prominent companies in Guelph, including:

Apart from hiring a moving company, boxing and packing your items can become costly. If you are planning for a move, we recommend storing boxes from online orders, using plastic Tupperware you may have around the house, and keeping an eye on sales at large box stores. Costco often hands out boxes at checkout, and if asked, they have been known to give out boxes they would otherwise recycle.

TIP: Save your local newspapers and gift tissue paper to wrap fragile items such as mugs, plates, and picture frames.

Utility Connections

Electricity, gas, water, and telecommunications are all part of the administrative fees associated with closing. These fees make it possible for the activities to transfer to your new property and allow the buyer to set up their new utilities at closing. Setting aside $300- $500 to cover utility costs is recommended.

Avoiding Surprises on Closing Day

Closing Checklist

Ensure the deposit for your new home is settled out.
Choose a Lawyer to represent you in your transaction and budget for this cost.
Prepare for home inspection (if included in the sale) and home appraisal costs.
Secure your mortgage insurance.
Factor in land transfer taxes.
Create a budget for moving expenses.
Determine utility transfer fees for common expenses to move over with the title.

Interested in learning more about the buying process? We’d love to chat. Reach us by email at info@capstonereps.com or call 519.824.9050.

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