The hidden cost of home selling
As we all know, homes are very expensive. For the majority of us, homes are the most expensive thing we will ever buy or sell.
Many of us have discovered when buying our first home that there are a myriad of fees attached to the process, paid to the many players involved. When buying, we often encounter home inspection fees, status certificate costs, land transfer fees, title insurance, bank charges and other fees and costs. The same is true when selling. But unlike buyers who are moving from renting to owning, home sellers are often moving up and they need to know more exactly what they are going to net. This post will attempt to help identify the fees, taxes, commissions, penalties and other costs home sellers will likely have to pay.
Real estate commissions
Unless you are attempting to sell your home on your own, in Waterloo Region a home seller will have to pay a Realtor a negotiated commission. Locally, this is typically 4%, of which 2% is paid to the cooperating Realtor’s brokerage. Commission rates sometimes vary. Some agents still charge 5% or more and some will charge less, (maybe 3%, or 3.5%, of which 2% still goes to the cooperating brokerage).
Private home seller’s using a home selling service often pay 2% to the cooperating brokerage.
Real estate commissions are the home sellers’ largest expense.
You will need a lawyer to execute the documents. Most local real estate lawyers have a flat fee for typical residential real estate transactions. They charge about $1,000.
In addition to this, expect to pay ‘disbursements’ which include things like courier charges, photocopying and postage. Disbursements can often add to $200 or $300.
And then there is Title Insurance. In the olden days (more than twenty years ago) a clerk would go down to the city hall (or where ever title records were held) and ensure that the property being transferred was owned by the seller, had no liens against it, essentially that the buyer was getting clear title to the property. Nowadays, insurance usually takes care of that and usually the buyer or the buyers lender requires it (and pays for it). Insurance coverage varies and fees range $150-$500.
Municipal taxes are often paid twice a year. Utilities can be prepaid too. Upon closing, the buyer must compensate the seller for any taxes or utility charges that have been paid in advance.
Capital Gains Tax
If you are selling your family home, (your matrimonial home) you do not have to pay any capital gain tax. However, if you are selling an investment property, you will be taxed on 50% of the profit. You will be taxed on the difference between what you bought it for and what you sold it for). That goes straight onto your income.
There are a multitude of mortgage packages out there. Even if you are porting your mortgage to a new place, chances are there will be fees and perhaps penalties involved with your mortgage prepayment, breakup or transfer.
I recently read that people are moving on average now every ten years. It used to be seven. If that is true, one of the reasons is likely due to the high cost of paying the professionals involved for the services you need to sell. But look at it this way, if you are selling today, you will be getting a heck of a lot more than you paid for the place!