When it comes to purchasing property, there can be many factors to consider. From the location, style of the building, features of the house and proximity to transit – the list can be endless depending on your needs. However, there is one factor that equally affects almost every buyer: the price. That is why we want to make sure all of our buyers are well aware of the costs associated with purchasing a property right from the start.
A buyer’s cost isn’t just the ‘price’ you agree to pay the seller. As a buyer, there are additional costs to be paid known as ‘Closing Costs’, and these are the legal and administrative fees associated with the purchase. This can be expected to be roughly 2% to 5% of the purchase price.
While there are a variety of factors that could add to your closing costs (depending on the property and the parties involved), there are a few that all transactions will require in order to successfully complete.
Property Transfer Tax (PTT):
Whenever the interests on a property are transferred from one individual to another, a change of title on the land is required at the Land Title and Survey Authority Office. When this transfer takes place, the buyer will have to pay a property transfer tax.Calculated based on the fair market value of the property, the amount of PTT payable will be generally determined as follows:
- 1% of the fair market value up to and including $200,000
- 2% of the fair market value greater than $200,000 and up to and including $2,000,000
- 3% of the fair market value greater than $2,000,000
- Further 2% to be applied to residential property over $3,000,000
*Fair Market Value = Agreed Upon Purchase Price
Some situations allow for full or partial exemption to the PTT. For example, under the First Time Home Buyer’s Program or the Newly Built Home Exemption.
More information on PTT can be found at: https://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax
More information on PTT exemptions can be found at: https://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/exemptions
- Legal Fees:
During a real estate transaction, a lawyer or notary public is required to handle all the legal components of a property transfer. This includes, but is not limited to, Land Title registration, property transfer tax calculation, property is transferred with clear title absent of all claims, and disbursements. For these services, their service fee should be included when allotting for the closing cost.
Apart from the PTT and legal fees that will have to be paid in order for a transaction to completed successfully, other costs could also apply and are worth considering to make sure enough money is set aside for. Some of these costs may include:
5% GST is applicable to new consumer goods such as pre-sales. For more information on what pre-sale financial costs should be considered visit our discussion here.
- Fire & Liability Insurance:
Obtaining insurance on your new property is of utmost importance to ensure that the cost of your building and its contents are protected against perils. It is wise to make sure insurance is in place by the time of the completion date.
- Appraisal Fee and Survey Fee:
Some lending institutions may require an appraisal and/or survey of the property to be obtained prior to their approval of a loan. This cost will typically fall on the buyer.
- Home Inspection:
Depending on the property, some buyers may make their offer subject to a satisfactory home inspection. Through a home inspection you can gain information on whether the property has any major functional defects, material defects, or health and safety concerns. This cost typically falls on the buyer.
- Property Taxes:
Depending on when a property is purchased, if the previous owner has already paid the year’s property taxes in full, the buyer will have to reimburse the seller for their share of the year.