Closing Costs for a Seller
Sellers should expect to pay certain costs associated with the completion of their home or condo sale. These include:
1. Legal fees - typically range from $500 - $1,000 for a sale.
2. Mortgage discharge penalty - most Canadian mortgages may be paid off early, but the seller will pay a penalty equal to the greater of (i) 3 months interest and (ii) the interest rate differential. For floating rate mortgages, the penalty is only 3 months interest. These can sometimes be reduced if the Seller has the right to prepay a portion of their mortgage.
3. Mortgage Discharge Fee - most banks will charge between $250 and $325 to prepare the mortgage discharge documents and an additional $70.50 to register the mortgage discharge on title.
4. Closing Adjustments - At the time of closing, the Seller's lawyer will prepare a Statement of Adjustments which sets out adjustments to the purchase price for items that are pro-rated between the buyer and the seller. The most common examples are property taxes, flat water bills and condominium monthly fees. If the Seller has paid more than its pro-rata share of these costs before the date of closing for the relevant period, the buyer will compensate them. If the Seller has paid less than its pro-rata share, the seller will give the buyer a credit for the payments that the buyer will have to make in the future, but for which the seller got the benefit.
5. Commissions - the Seller's lawyer will pay the balance of commission owed to their realtor (if any). If the realtor has excess deposit, that money will be paid directly to the Seller by the realtor's office after closing. Please note that HST is added on top of the agreed upon commission rate.
Many lawyers will write to the various utilities providers (hydro, water, gas) to advise them that the property is being sold and that the utility should arrange to read the meter on the date of closing. However, we advise clients to contact their local utilities providers in advance to advise of the closing date and to arrange for meter readings - we find the utilities providers more responsive to their own clients. In a condominium, the hydro sub-meter (if there is one) may have to be read by the condominium corporation.
If you are selling a condominium, please advise the property manager of the date of sale. The Seller should pay the monthly common expenses and any assessments due up to the date of closing. Please ensure that any pre-authorized payments of monthly common expenses are terminated in the month of closing, prior to the closing date. If the transaction closes on the first of the month, the Buyer is obligated to make the monthly common expense payment.
The Seller should make all installments or payments of property taxes that are due prior to the closing date. If the Seller pays more than its pro-rata share, the Seller will be compensated by the Buyer through an adjustment at closing. If the Seller makes its tax payment through a pre-authorized debit plan with the City, it should cancel that plan prior to closing to avoid subsequent tax payments being made by the Seller. Please note that at the time of cancellation, the Seller may be obligated to make immediate payment of all taxes due at that time. Again, if the Seller pays more than its pro-rata share, the Seller will be compensated by the Buyer through an adjustment at closing.
A Seller should arrange to cancel their home insurance at the time of closing. We usually advise keeping the house insured for one business day after the scheduled closing date, just in case the closing date is moved by a day.
Information for Seller's Lawyer
Your lawyer will ask for some or all of the following information to assist them to close your sale transaction.
1. A copy of the current year property tax bill (or the prior year if none has been issued in the current year).
2. Confirmation from you (usually verbal) that you have made your tax installment payments due up to the time of closing (or that you are on a pre-authorized payment plan with the City or your mortgage lender makes the payments).
3. The name of the mortgage lender, branch information and mortgage loan number. The same applies to any secured Line of Credit. The lawyer will use this information to obtain mortgage discharge statements and pay off the mortgage or LOC at closing.
4. Is there a hot water tank rental? Who is the provider? If it is Reliance or Oz, there may be special forms that the buyer must sign to complete the assumption of the water heater contract at closing.
5. Is there a furnace or heat pump rental? There is likely a special forms that the buyer must sign to complete the assumption of the water heater contract at closing.
6. If it is a condominium, the contact information for the property manager.
7. Is the home heated by gas or oil? If oil, the tank should be filled right before closing and a copy of the invoice sent to the lawyer, so that the oil can be adjusted on the Statement of Adjustments.
8. Picture ID - usually provided a few days before closing when the clients attend at the lawyer's office to sign closing documents.
9. Void cheque - our firm will deposit the net sale proceeds (after paying the mortgage, commission and legal fees) directly into the Seller's bank account - on the next business day.
10. Keys - the Seller must deliver one set of keys to their lawyer's office, so that it can be sent to the Buyer's lawyer on the day of closing. We advise clients to leave all other sets of keys on the kitchen counter, along with garage door openers, security codes etc.... If a condominium, one set may have to be left with the concierge.
Meeting your lawyer
We typically like to meet with our clients 2 -3 days prior to the closing date to sign all of the closing documents and obtain keys etc.. In the case of a purchase, we will typically ask the Buyer to bring a certified cheque or bank draft in the balance of funds that we will need to complete the transaction (the mortgage funds come directly from the lender). You should expect to bring 2 pieces of valid ID, preferably a driver's license and passport, SIN card or citizenship card. Some lenders will accept a credit card as a second piece of ID. This meeting typically takes 45 minutes to an hour.
It is rarely necessary to be available on the day of closing, however, if you are purchasing a property, in Ontario the keys are usually delivered to the Buyer's lawyer's office and are released to the Buyer once the transaction closes - which is usually between 3: 00 pm and 5:00 pm. The reason transactions rarely close before 3:00 pm is that the Buyer's lawyer will usually not receive mortgage funds until mid-morning and then has to certify cheques and deliver funds to the Seller's lawyer.
A Seller should vacate the property completely before the transaction closes on the day of closing. Once the Buyer has paid for the property and title has passed to the Buyer, it is the Buyer's property and the Seller and all of their stuff should be gone. We recommend being out by 1:00 pm on the day of closing, if possible.
I hope this helps!
John Toublaris, Sales Representative
RE/MAX Ultimate Realty Inc., Brokerage