Are you listing your home for sale? Then you’re likely wondering about fees associated with selling a house in Canada, and maybe even real estate lawyer fees in particular, along with who pays lawyer fees when selling a house.
Listing your home in the Canadian real estate market involves much more than the transaction itself. Many fees, rules and participants are involved, some of which you may not be aware of. Here’s a rundown of what you need to know when selling a house in Canada.
Fees Associated with Selling a House in Canada
First, it is crucial to know that when fees are involved in selling a home, the seller’s attorney distributes the funds for them on the closing date. They typically consist of real estate lawyer fees and other costs associated with the transaction’s closing, such as land transfer taxes.
But what are the other fees associated with selling a house?
Mortgage Pre-Payment Penalties
Do you still have a mortgage on your property? If you plan to sell your home before the maturity date of the mortgage term, you will likely face pre-payment penalties.
There are a variety of reasons that you might consider selling a house with a mortgage. The most common scenarios are when you need to move to a new location for a new job opportunity, you’ve added to your family or when your children head off to college or university or move out altogether.
The cost of breaking the mortgage contract will depend on your mortgage type.
Open Mortgages
If you have an open mortgage, you can sell your home without paying penalties for breaking the mortgage contract. That’s because an open mortgage is designed to provide greater flexibility without incurring financial penalties. While open mortgages still have a term, borrowers don’t have to wait until the mortgage matures to make changes.
Closed Mortgages
A closed mortgage has set conditions for the duration of the mortgage term. Once the mortgage contract is signed, the terms and conditions can’t be altered without incurring pre-payment penalties. If you chose a closed mortgage for the lower interest rate without understanding all the possible repercussions, you may be facing substantial penalty fees associated with wanting to break the mortgage now.
If you have a closed mortgage with a variable rate, you will usually be forced to pay three months of interest.
If you have a closed mortgage with a fixed rate, you will either pay three months’ worth of interest or the Interest Rate Differential (IRD) amount, whichever is GREATER.
Here’s how the math would work:
Suppose you bought your property when interest rates were high, using a fixed-rate/closed mortgage option with a 5-year term at 6.59%. Let’s also suppose that you still have 24 months left in the term, and you still owe $300,000 but want to break the mortgage and sell now.
Three Months’ Interest Calculation:
Outstanding balance of your mortgage:
$300,000
Multiply the outstanding balance of your mortgage by the annual interest rate on your mortgage:
$300,000 x 6.59% = $19,770
Divide the answer by 12 months to get the monthly interest payable per year:
$19,770/12 = $1,647.50
Multiply the answer by 3 (months)
$1,647.50 x 3 = $4,942.50
Total Three Months’ Interest is $4,942.50
Interest Rate Differential Calculation (IRD):
Current mortgage interest rate:
6.59%
Current Interest Rate on a 3-Year Term:
4.74%
Rate difference between your mortgage rate and current interest rate:
1.85%
Multiply your mortgage balance by the rate differential to get the interest differential for 1 year:
$300,000 x 1.85% = $5,550
Divide this amount by 12 to get the amount for 1 month:
$5,550.00/12 = $462.50
Multiply this amount by the number of months left in your term:
$462.50 x 24 = $11,100
Total Interest Rate Differential (IRD) Penalty is $11,100
In the case of a closed/fixed rate contract, the estimated penalty for selling a house with a mortgage, is $11,100 – since it is the GREATER of the results for the Three Months Interest versus IRD calculations.
Home Inspection Fees
In a buyer’s market, homebuyers will generally request a home inspection before purchasing your home. In certain circumstances, you might be responsible for covering the costs of a home inspection, which can be as high as $500 to $1,000. For example, to make potential buyers feel more confident about making an offer, as a seller, you might choose to do a home inspection before listing the house for sale and make the report available to potential buyers.
Typically, however, this is the buyer’s responsibility.
Rental Costs
It might not be that common, but if you rent a water heater or HVAC system, a buyer may NOT want to assume these rental contracts when purchasing your home. For example, most buyers are loathe to take on the monthly payment of an HVAC system and will usually insist they be paid out in full as a condition of purchase. This is because the rental fee could be more than the new buyer could negotiate on their own and because renting an HVAC system can make it harder for a buyer to get approved for a mortgage and can decrease the resale value of a home. Also, because HVAC rental companies may have registered a lien against the homeowner’s property to ensure they get paid, satisfying the lien can add extra legal fees for buyers and slow down a sale.
Staging Your Home
Years ago, it might have been enough to paint your walls and tidy up your home in order to sell it. Today, however, you’ll likely need to do more, including decluttering, switching out various pieces of your furniture, hanging art on the wall, etc. This is known as home staging.
Is home staging absolutely necessary? No. However, industry experts say that home staging can make your home sell faster and add thousands of dollars to your ROI.
According to a recent survey by the International Association of Home Staging Professionals, staged homes (with an investment of one per cent of the listed price) sold up to 30 per cent faster on average and for 20% more than their un-staged counterparts. A survey by the North American Real Estate Staging Association showed even better results, with staged homes spending 73 per cent less time on the market and selling for five to 25 per cent above listing price.
In the home staging process, you’ll be looking to do the following:
- Maximize your home’s curb appeal
- Declutter and re-arrange furniture to create a better flow and more open feeling to various rooms in your house
- Depersonalize to reduce distractions and create the perception of extra space
A new twist on home staging is “virtual” staging, which leverages technology to digitally enhance photos to better demonstrate how a buyer could arrange and furnish various rooms and spaces. Virtual staging is ideal for vacant properties, which pose added challenges for sellers. It also eliminates the extra effort and costs associated with paying for professional staging or renting or buying furniture and accessories on your own.
Real Estate Lawyer Fees
Who Pays Lawyer Fees When Selling a House?
The seller and buyer are EACH responsible for paying their share of the legal fees associated with selling a house
What a Real Estate Lawyer Does for the Seller
On the seller’s side, the real estate lawyer’s role focuses on paying out any remaining mortgage on the house and ensuring a smooth transfer of the property’s title.
Other tasks performed include:
- Reviewing the Agreement of Purchase and Sale (APS) and other legal documents
- Assisting with the negotiation of the terms and conditions of the APS
- Preparing the deed for the seller’s house
- Remedying deal and title issues as they arise
- Closing the transaction
- Ensuring all legal and financial conditions have been met
- Exchanging legal documents with and handing over the keys to the home to the Buyer’s lawyer
What a Real Estate Lawyer Does for the Buyer
Real estate transactions involve complex legal documents and procedures that require a thorough understanding of property law. A buyer’s real estate lawyer conducts a title search to confirm that the seller has the legal right to sell the property and looks for any outstanding liens (debts), mortgages, or other encumbrances on the property. They also outline the terms of the buyer’s side of the Agreement of Purchase and Sale (APS), take care of the transfer of ownership and handle the registration of the transaction with the government.
Other tasks performed include:
- Arranging for Title Insurance
- Ensuring the buyer has a valid title upon closing
- Ensuring property taxes are up to date
- Calculating the land transfer tax due on closing
- Drawing up the buyer’s mortgage documents
- Closing the transaction and ensuring all legal and financial conditions are met
- Exchanging legal documents with and accepting the keys to the home from the seller’s lawyer
H2 Buying and Selling a Home in Canada is Expensive
Buying and selling in the Canadian real estate market is an expensive endeavour. Before you start your journey to selling your property or achieving the dream of homeownership, it’s vital to educate yourself on the fees associated with selling a house – and real estate lawyer fees in particular. You should include them in your overall budget to ensure you aren’t surprised by these additional expenses and that you have enough money set aside to pay what’s due at the transaction’s closing.
