PURCHASERS SHOULD BE AWARE
OF HIDDEN CLOSING COSTS
It can be a nasty surprise
for novice purchasers to discover on closing day, that their dream home
can become a nightmare of hidden closing charges, costing them thousands
of dollars more than expected. These extra charges are pesky and unpleasant,
but are inevitable, so that first-time buyers should be fully aware at
the outset of a transaction in order to set aside additional funds.The
following will apply in most real estate deals. Caveat Emptor:
"The Devil is in the details".
- G.S.T.
A Goods and Services Tax of 5% applies to all new homes,
but is generally
included in the purchase price. There is no G.S.T tax on re-sale housing.
Clarify your obligation with your lawyer or accountant before purchasing.
Note, that professional fees are subject to G.S.T, as are any chattels
being purchased.
- LEGAL
FEES AND DISBURSEMENTS
Ask your lawyer
in advance to estimate these costs for you so there are no little surprises
such as Law Society fees and charges for an Estoppel Certicate.
- ADJUSTMENTS
This refers to your proportionate share of realty taxes, utility charges,
condo maintenance fees etc. If the original owner has paid these in advance,
the new buyer must rebate these amounts on closing day.
- SPECIAL
LEVIES ON NEW HOMES
Be sure to read the fine print before buying. In new condominiums, the
purchaser is required to pay extra monthly fees to establish a Reserve
Fund, and also pay back the Developer for deposit insurance, as well as
various other BuIlder's costs. Study the Disclosure Documents thoroughly
and consult a lawyer.
- INTERIM
OCCUPANCY FEES
Between the time a new condominium is finished and the time it is registered,
buyers are sometimes surprised to learn they must pay "rent" for
several
months according to a Phantom Mortgage. This is a significant extra cost
to an all-cash buyer. Get professional advice from a realtor or lawyer.
- MOVING
COSTS
Professional moving services can help minimize the trauma of a move, but
the costs can be significant. If you have a choice of the closing day,
select a date early in the month, on a non-weekend, when rates are
cheaper. Also, be sure to reserve an elevator if you are buying a condo,
and expect to pay a refundable damage deposit to the corporation of several
hundreds of dollars for move-ins.
- CONTINGENCY
COSTS
In a perfect world, all deals close on time, and life is good. In reality,
snags abound. For various legal reasons, a few deals close late, "in escrow",
or not at all. New condominiums, alas, hardly ever close on time, so have
some extra funds available for temporary accommodation, if required.
- LAND
TRANSFER TAX
This is generally the biggest hidden cost on closing. Depending on how
expensive your new home is, this tax can be thousands of dollars, ranging
from .5% to nearly 2% of the purchase price. Happily, first-time buyers
currently enjoy a substantial rebate if they are buying a principal residence.
Here is the formula to determine what you will owe the Ontario government.
Be prepared. Do the math before you buy.
FORMULA FOR LAND TRANSFER TAX
IF YOUR
PURCHASE PRICE IS :
UNDER
$55,000
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then
multiply by .005
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$55,000-$250,000
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then
multiply by .01 and subtract $275
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OVER$250,000
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then
multiply by .015 and subtract $1525
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OVER$400,000
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then
multiply by .02 and subtract $3525
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EXAMPLES:
A Purchaser of a $200,000 home,
must pay $1725 Land Transfer Tax
A Purchaser of a $500,000 home,
must pay $6475 Land Transfer Tax |
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________________________________________________________________________
10 IMPORTANT
THINGS TO KNOW WHEN PURCHASING
A NEW CONDOMINIUM FROM PLANS:
_______________________________________________________________________
by
Lynn Tribbling
1.
When you purchase a new condominium from a Developer, you have 10 calendar
days from the date you signed your offer to review all the documents
and decide if you want to proceed. During that time, called the "cooling-off
period", you are advised to see a real estate lawyer who can help
review the Agreement of Purchase & Sale, and Disclosure documents
to explain your obligations and risks under the contract.
2.
During your 10-day rescission period, you should make any small changes
or modifications to the contract at that time, since changes after that
10-day period are not allowed. After 10 days, you have a binding deal.
3.
You should
note that the closing dates for new developments are always fluid and
often subject to a series of extensions. Hence, expect delays, they
are normal. Your moving plans should be flexible.
4.
Note that the contract generally restricts resale of the unit prior
to closing so that you will not be allowed to sell your suite to someone
else before you are the owner. Nor will you, in most cases, be allowed
to lease out your unit until final closing.
5.
The finishings
provided by the developer are explained in a special Schedule 'B"
and variations from the items listed, are upgrades and involve additional
cost. Be sure to read Schedule"'B" very carefully to see exactly
what is included in your purchase price. Never assume or rely on verbal
statements or representations. Make sure if an issue is important to
you, it must be in writing to be binding.
6.
Note that a special paragraph of the Agreement of Purchase & Sale
relates to Adjustments which outlines extra closing costs that the Purchaser
is expected to pay. Your lawyer will explain them to you, but it is
important you set aside money for these additional costs. For example
(ONHWP, development charges, local improvement levies, and any other
charges.) Also, set aside enough money for lawyer's fees on closing,
land transfer tax, and moving expenses.
7.
There are two closings when you buy a new condominium suite from plans.
The first closing is called Occupancy Closing and at that time you pay
that part of the downpayment that is still owing to the Developer (usually
5-10% of the purchase price). You will, receive a key to your new suite,
may move in, and are required to pay a monthly fee which consists of
your condominium maintenance fee, estimated realty taxes, plus interest
on the balance of money owed to the Developer. This payment or occupancy
fee, is much like a temporary rental fee, which is due up until the
date that the condominium plan is registered. After registration you
will be notified of the date set for Final Closing when you pay the
balance of the purchase price to the Developer, generally by the way
of a mortgage. You are now the legal owner of your new condominium residence.
If you anticipate paying all cash, with no mortgage on final closing,
ask for a special clause to be included in your agreement.
8.
Some new condominiums currently being marketed are "grandfathered"
if they had at least one sale prior to the inception of the new Condominium
Act of May 5, 2001. This means that you will only receive interest on
your deposit monies form Occupancy Date until Final Closing date. This
interest, set by law at 2% below the Bank of Canada rate will appear
as an adjustment on your closing documents as a credit towards your
purchase price. For projects sold after the new Condominium Act came
into force, it is required that interest be paid from date of receipt
of deposits to occupancy closing.
9.
The Developer is required by law to clearly state in the declaration
the exact monthly maintenance fee required of each purchaser. This amount
is warranted to be accurate for the first year of occupancy. After that
time, the Board of Directors, consisting of members elected form the
owners, will determine the monthly maintenance fees. In most new buildings,
maintenance fees are especially subject to increase during the first
5 years of operation. Parking and lockers require small additional maintenance
fees.
10.
No new development, regardless of professionalism, and integrity of
the Developer, is ever perfect. There are always some predictable frustrations,
irritants, and challenges for purchasers moving into a new building.
Common elements (Lobbies, recreation center, gym, hallways, etc.) are
usually the last things to be completed. Usable square footages may
vary up to 10% from plans. Purchaser should therefore be patient and
reasonable in their expectations. Eventually most of the issues are
resolved and purchasers live happily ever after, more often than not.
________________________________________________________________________________
Home Buyers: Make Sure
to Sign Agency Agreement with your Realtor
by Alan Silverstein
-- a Toronto real estate lawyer and author
(Article reprinted from Toronto Star Newspaper -- Mar. 11, 2000)
Confusion over change
mirrors the level of controversy that preceded it. A prime example: the
relationship between buyers and real estate agents.
In the early 1990s,
sub-agency (where both the seller's agent and the buyer's agent represent
only the seller) was denounced in several Canadian cases. Not only was
the door opened to buyer agency (agents representing buyers only), but
agents were now obligated to disclose to buyers, sellers and other agents
exactly who they represented in a transaction, and what services would
be provided.
That principle is now
embodied in the new Code of Ethics governing all real estate agents in
Ontario. Disclosure must be made "at the earliest practical opportunity,"
but no later than when an agent "accepts an agency" (when their conduct
establishes a professional relationship. Agents don't accept zin agency
simply by answering questions, talking about a property, or showing a
listing).
Rule 4 of the code says
agents "shall enter into a written representation agreement (listing agreement
for sellers, agency agreement for purchasers) with a client at the earliest
practical opportunity, and in all cases before any offer to purchase is
submitted or presented."
Prudent agents won't
wait until the offer stage to get these agreements signed, but will seek
them much earlier, in other words before "accepting an agency."
Listing agreements with
sellers, while technically not needed to sell a property, are essential
for agents to claim commission. What happens if a purchaser won't sign
a buyer agency agreement? Can an agent still represent the buyer? And
do consumers benefit by signing that document?
I posed those questions
to Allan Johnston, manager of complaints, compliance and discipline at
the Real Estate Council of Ontario, whose mandate is to enforce the Code
of Ethics.
At the outset, Johnston
drew a critical distinction between buyers who are "clients" of an agent,
and buyers who are simply "customers."
"Agents owe clients
the highest level of fiduciary duties - competence, diligence, full disclosure,
obedience, loyalty, confidentiality and complete accounting. Agents shall
endeavour to protect and promote the best interests of a client," he commented.
Being a customer ranks
well below client status. Agents only must deal fairly, honestly and with
integrity with customers, and not mislead them about a property or a transaction.
When acting for customers, agents need only exercise reasonable care and
skill, to ensure answers given or information provided is complete and
accurate.
"Written representation
agreements are mandatory if an agent is to represent a consumer as a client.
If buyers won't sign agency agreements, they can only be treated as customers,
not clients," Johnston explained.
Buyers then lose the
full arsenal of fiduciary duties available to clients. So when no buyer
agency agreement is signed, confidentiality is out the window.
"Anything the buyer
tells his or her agent can and must be divulged to the vendor (i.e. how
much the buyer is prepared to pay for a property), as the agent is not
working under a buyer agency agreement."
Nor should the buyer
expect undivided loyalty from his or her agent, as customer status means
the tainted sub-agency rule governs their relationship, not buyer agency.
"Clearly," Johnston
emphasized, "it is in a buyers' best interests to sign a representation
agreement. It allows them to benefit as a client from the full set of
fiduciary duties. However, what creates concern for consumers are the
terms and conditions of that contract." What should a buyer agency agreement
contain? According to Johnston:
- The
role and nature of services to be provided (and if dual agency will
be allowed).
- An
obligation by the agent to make the buyer aware (and vice versa) of
any properties meeting the buyer's criteria.
- The
term of the agreement (generally not to exceed six months).
- The
commission arrangement (including a promise to rebate or reduce commission).
- Any
other expectations of the client/obligations of the agent.
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UNDERSTANDING DUAL AGENCY
IMPORTANT GUIDELINES FOR BUYERS BUYING THROUGH
A LISTING BROKER:
It
is the primary duty of the listing broker to protect
the interests of the VENDOR, who is the party paying
the real estate commission. Specifically, the Realtor
who is the listing agent has the following legal obligations:
1) To advise and help
the Vendor obtain the best selling price.
2)
To negotiate the most favorably terms and conditions for
the Vendor.
3)
To maintain confidentiality as directed by the Vendor,
and within the law.
It
is the secondary duty of the listing agent to the PURCHASER:
A)
To treat the Purchaser fairly and professionally.
B)
To answer the Purchaser's questions honestly.
C)
To provide information, not advice.
HENCE,
WHENEVER A PURCHASER INTENDS TO PLACE AN OFFER THROUGH
THE LISTING AGENT, IT IS IMPERATIVE THAT:
i)
The Purchaser obtain independent legal and financial advice
prior to the offer.
ii)
The Purchaser should verify information and inspect the
property throughly for any defects or deficiencies.
iii)
The Purchaser should conduct his due diligence as to market
value, and not seek advice regarding price from the listing
agent.
iv)
The Purchaser should not disclose any confidences to the
listing agent that he does not wish the Vendor to know.
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Lynn Tribbling's Personal Guarantee
To Provide the Ultimate Service!
HOW I
CAN HELP YOU PURCHASE YOUR DREAM HOME
SPECIAL BUYER'S SERVICES:
- Conduct
a Buyer's Information Interview to determine your goals, price range,
needs and time frame. Review with you, prime neighbourhoods, buildings,
values, and clarify the limits of my special expertise.
- Explanation
of Agency Law such as Buyer Broker, Seller's Agency, Dual Agency. Outline
the advantages and obligations of working exclusively with one Realtor
at a time, as an exclusive "Purchaser's Agent", within a specified region.
- Guidance
in selecting target areas and addresses, or referral to associated Realtors
with competence in remote locations. Review realistic market prices
in your target location. Help focus your search.
- Provide
an up-to-date computerized printout showing all listings available,
as well as full detafis of selected properties that suit your needs,
price range, and ideal location.
- Arrange
personal showings at your convenience to view properties available for
sale that fit your criteria, and give professional opinions about features
and flaws of each whenever possible.
- Provide
a preliminary estimate of the current market value based on M.L.S. computer
data of your "short-list" properties. Help you decide.;
- Prepare
a written offer to purchase with legally informed terms and conditions
that best represent your interests.
- Assist
in determining the most appropriate negotiating strategy, present your
position as effectively as possible. Keep you informed in a timely manner.
Provide you with an final copy of an accepted offer, if any.
- Provide
professional resources for moving as you may require such as movers,
decorators, cleaners, and tradesman. Suggests names of lawyers.
- Conduct
a Service Satisfaction Survey to assure 1 have met your expectations
in every way, especially with respect to helpfulness, integrity, professionalism,
and flare!
Lynn Tribbling's
mission is to add three ingredients - expertise, dedication, and integrity
to make your vision a reality.
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Gordon Chin www.gordonchin.com
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