Closing Costs: What to Expect When Selling Your Home
by Chris Penny
on Thursday, May 14th, 2015 at 7:30am.
Many people depend on the sale of a home to finance a newer home or other important expense. However, you need to keep in mind that just because your home sold for $450,000, it doesn't mean that will be the amount in your bank account. There are several closing costs that will take a small but noticeable percentage of the sale price. Here are some other expenses that you as the seller should be prepared for.
Costs Associated With the Property
Depending on the type of property, you might have homeowner's association costs, maintenance costs, property taxes, municipal assessments, and other bills associated with your home or condo. If so, these will need to be paid in full when you hand over the real estate. In addition, you must pay to remove any liens on your property if these exist.
Mortgage Early Payment Costs
If you have not paid off your current home mortgage yet, there will likely be costs associated with this. If you have a closed mortgage, you will need to pay prepayment charges, which are determined by how much time and money is left owing. These can add up to the equivalent of several months' worth of mortgage payments. In addition, there could be a discharge fee that can be as much as $270. However, these costs can be avoided if you are buying a new property of similar value. You can transfer your mortgage to the new property and pay only interest that has accrued since your last payment was made. Work with your bank or mortgage broker to get a better idea on how this will play out in your situation.
Taxes and Miscellaneous Legal Fees
There are several legal fees and taxes associated with selling a home. While these are small compared to the other costs, they can add up to a significant amount of money. Most areas require you to pay sales tax on real estate. In addition, there can be lawyer fees, registration fees, and other disbursement costs. If you earn money from the sale of the home (like an investment property), you will be taxed on earnings. If this is an income property, there will also be additional capital gains taxes.
In Ontario, you also have to pay a land transfer tax that is calculated by the home's sale price. You can find an estimate calculator for this online. Remember that this is an estimate; your total land transfer tax may be more or less.
Real Estate Agent Commission
If you used a real estate agent, then there is a commission that is several percent of the sale to be paid out. In addition, you might need to pay the commission of the buyer's agent. Many people try to cut this cost by selling their home themselves without a listing agent, but this usually does not pay off. A listing agent can usually sell the house quicker and for a higher price.
Percentage rates vary depending on the Realtor, but this should have been negotiated in your contract when you signed with them. That should also include any payments in regards to the buyer's agent.
So, once your home is sold, you're going to need to move out. The costs of moving, while normally pretty small when compared to closing costs, can be significant if you haven't prepared for them. You will need to buy boxes and pay for a moving company, if you choose to use one. Lost work is another factor, as packing, moving, and unpacking will take several days for most people. In addition, there are usually fees to disconnect and reconnect utilities such as water, electricity, heating and gas, cable, telephone, and more.
Selling a home is very exciting, as it allows you to move on to a new home and a new future. However, there are many costs that come with selling a home which can leave people in a bad financial situation if they’re not prepared. Planning ahead and savings for this will make your closing a stress-free and exciting experience.