Buying or selling a home involves more than just the price tag attached to a listing—there are also closing costs to consider. These expenses cover legal fees, taxes, and other charges required to finalize the transaction.
The final costs for the buyer will look different than the final costs for the seller, so understanding these expenses upfront helps both parties budget properly and avoid unexpected charges come closing day.
Closing costs can vary based on location, lender requirements, and the specifics of the transaction. Whether you’re purchasing your first home or selling an investment property, knowing what to expect ensures a smoother experience. Let’s break down everything you need to know about closing costs and how to prepare for them.
What Are Closing Costs?
Just when you think you’ve finally finished up the momentous occasion of buying or selling a home, you come to the very last stage of the process. Closing costs are the various fees and expenses that come due when a real estate transaction is officially finalized. They cover everything from legal fees and land transfer taxes to home inspections and title insurance. These costs make up the final step in sealing the deal—above and beyond the purchase price.
These costs are typically due on closing day, when ownership officially changes hands. Buyers usually pay the bulk of the closing costs, including legal fees, mortgage-related charges, and land transfer taxes. Sellers, on the other hand, are responsible for covering real estate commission fees and, in some cases, legal fees to discharge their mortgage.
The total amount varies based on location and the specifics of the transaction, but buyers should budget 1.5% to 4% of the home’s purchase price for closing costs. Sellers should account for their own fees to ensure a smooth handover.
Closing Costs for Home Buyers
Home buyers need to budget for more than just the down payment on a home. Smart buyers will keep the closing costs in mind and budget accordingly. Some of the typical closing costs for buyers include:
- Legal Fees: Hiring a lawyer or notary to review contracts and handle paperwork typically costs $1,000 to $3,000.
- Land Transfer Tax: This tax varies by province and municipality, with some cities charging an additional amount. First-time buyers may qualify for rebates.
- Title Insurance: A one-time fee of $200 to $500 protects buyers against ownership disputes or title fraud.
- Home Inspection & Appraisal Fees: Inspections cost $300 to $600, while lender-required appraisals range from $300 to $500.
- Mortgage Fees: Lender fees, application fees, and CMHC mortgage insurance (if required) can add several hundred to thousands of dollars.
- Adjustments: Buyers may need to reimburse sellers for prepaid utilities, property taxes, or condo fees.
Closing Costs for Home Sellers
Selling a home comes with its own set of closing costs. Here’s what sellers should expect:
- Real Estate Agent Commission: Typically the largest expense, commissions range from 3% to 7% of the sale price, split between the buyer’s and seller’s agents.
- Legal Fees: Sellers need a lawyer or notary to prepare documents and finalize the sale, usually costing $1,000 to $2,500.
- Mortgage Discharge Fees: If there’s an outstanding mortgage, lenders may charge a discharge fee or prepayment penalty, which varies based on the mortgage terms.
- Adjustments: Sellers may need to reimburse buyers for prepaid property taxes or condo fees, depending on the closing date.
- Capital Gains Tax (if applicable): If selling an investment property or secondary residence, capital gains tax may apply on 50% of the profit.
Sellers should budget 3% to 6% of the sale price for closing costs, depending on the specifics of their transaction.
How to Reduce or Prepare for Closing Costs
Tips for Buyers
Closing costs can add up quickly, but a little planning can help keep them manageable. By doing some research and financial planning early on, buyers can reduce the stress of closing day and keep more money in their pockets.
Here are some tips for buyers:
- Compare Lenders: Interest rates and fees vary, so shop around for the best mortgage terms. Even a small rate difference can save you thousands over time.
- Ask About First-Time Homebuyer Rebates: Many provinces offer land transfer tax rebates or other incentives for first-time buyers, helping to lower upfront costs.
- Budget for Hidden Costs: Closing costs can include smaller expenses like courier fees, title searches, and adjustments. Setting aside up to 4% of the home’s price ensures you won’t be caught off guard.
Tips for Sellers
From negotiating commissions to handling outstanding payments in advance, here’s how sellers can minimize closing costs and avoid unexpected surprises:
- Negotiate Real Estate Commission: While agent commissions are typically a percentage of the sale price, there may be room for negotiation, especially in a competitive market.
- Pay Off Outstanding Property Taxes or Liens Before Listing: Ensuring taxes and any outstanding debts are settled ahead of time can prevent last-minute surprises that might delay closing.
- Work with a Real Estate Agent to Minimize Unexpected Fees: An experienced agent can help navigate costs, negotiate better terms, and ensure a smooth transaction.
By planning ahead and working with the right professionals, sellers can streamline the closing process and keep more of their sale proceeds.
The Importance of Working with a Real Estate Professional
Closing costs can be complex, but a knowledgeable real estate agent can help buyers and sellers navigate them with confidence. From explaining fees and potential savings to coordinating with lawyers and lenders, an experienced agent ensures that no detail is overlooked.
By planning ahead, a real estate professional can help avoid last-minute surprises, making the transaction as smooth as possible. They can also provide valuable insights on how to reduce costs, whether through negotiating commissions, finding first-time buyer rebates, or identifying hidden fees.
At Voortman Realty, we’re committed to guiding you through every step of the buying or selling process. Our team helps clients understand their closing costs, budget effectively, and make informed decisions, so there are no surprises on closing day. Whether you’re purchasing your first home or selling an investment property, we’re here to ensure a seamless experience.
Closing Costs: The Final Word
An integral part of any real estate transaction, closing costs cover everything from legal fees and land transfer taxes to mortgage charges and adjustments. Buyers should budget 1.5% to 4% of the home’s price, while sellers can expect to pay 3% to 6%, primarily due to agent commissions and legal costs.
Planning ahead and understanding these expenses can help you avoid some very unpleasant surprises. Whether you’re buying your dream home or selling a property, working with a real estate professional ensures a smooth process and helps identify ways to reduce costs.
Ready to budget for your home sale? Trust Voortman Realty to guide you every step of the way. Contact us today for expert advice on navigating closing costs and making your next real estate transaction as seamless as possible!