by Lynn Tribbling. Sales Representative Tel. (416) 391-3232
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".
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.
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.
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.
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.
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.
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.
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.
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.
THINGS TO KNOW WHEN PURCHASING
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
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:
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