Throughout the exciting journey of buying and selling real estate, up to and beyond the transaction completion date most Buyers and Sellers will often accumulate a wide variety of ancillary costs over and above the final purchase or sale price.
In this article, Kelly Grant, REALTOR® at MaxWell POLARIS outlines important financial considerations and cost categories that must always be accounted for by both Buyers and Sellers to avoid negative surprises.
Firstly, following the critical first 'buying property' steps of (a). selecting a quality Buyer REALTOR® to work with; and (b). selecting a quality mortgage broker for financing prequalification, below is a categorical list of real estate expenses Buyers must account for:
(1). Buyers’ own time, effort, expense in reviewing listings and viewing properties
(2). Buyer REALTOR® expenses (note: as outlined in Buyer Agreements, these are usually included and paid for by the Seller(s) upon completion date of a successful purchase with or without extra contract terms, but with written agreement can also be the responsibility of Buyer(s) to pay the Buyer REALTOR® commission over and above the purchase price)
(3). Conducting property inspections (and sewer scopes) until a successful purchase
(4). Conducting appraisal(s) which may or may not be included in mortgage financing
(5). Securing property insurance after full disclosure of answers to insurer’s questions
(6). Real Estate Lawyer expenses (and other Lawyer expenses if necessary)
(7). Paying property taxes owing between possession date and up to end of the year
(8). Paying first month (and beyond) of all utilities (and condo fees, if applicable)
(9). Moving expenses (including time and effort packing and time off work to move)
(10). Conducting desired list of renovations and upgrades following possession
* Note: Buyer closing costs can typically range between 2-3% of purchase price, but can vary to a high degree depending upon on item (10): ‘Renovations / Upgrades’.
Next, following the critical first step of selecting a quality listing REALTOR® to work with, below is a categorical list of real estate expenses Sellers must account for:
(1). If there is a mortgage registered on title > 70% of the list price, it is critical that Sellers immediately (i.e. prior to or upon listing and before accepting an offer to purchase) order a Mortgage Verification Statement and understand their financial position to guarantee that all closing costs listed below will be paid upon closing to avoid delays and legal issues with Buyers who will expect a timely key turnover.
(2). Ordering a Real Property Report and Compliance for residential / commercial / bare land condos (if applicable); Record of City Permits (e.g. for properties with secondary suites) (if applicable); and Full Condominium Documents (if applicable). This item can include additional costs (and sometimes significantly extra costs) to secure necessary Permits; Encroachment Agreements; Removals; and in extreme cases, Compensation to Buyers to Accept non-complying items ‘as-is’, or Rescission. For these reasons, it is advised for all Sellers to complete these items A.S.A.P.
(3). Sellers’ own time, effort, expense in getting property ready for sale and viewings
(4). Listing REALTOR® expenses (due upon closing or early termination), as outlined in the Seller Representation Agreement in exchange for listing services provided
(5). Repairing property issues before or after Buyer inspection up until completion
(6). Clearing title to pay out any outstanding liens; property taxes; condo fees; etc.
(7). Real Estate Lawyer expenses (and Estate Lawyer expenses, etc. if necessary)
(8). Moving expenses (including time and effort packing and time off work to move)
(9). Paying out any debts for utilities owed (and arrange shut-offs to avoid continuing charges)
(10). Special extra commercial or rural costs such as ordering Fire Marshall Report; Specialty Permits; Commercial Appraisals; Specialty Inspections; Engineering Plans and Specifications; Environmental Phase I and Phase II Reports; Tenant Agreements; Property Management Agreements; Water Quality Analysis Report; Driller Report; Well Flow Test; Septic Test (e.g. for commercial or rural properties, if applicable)
* Note: Seller closing costs can typically range between 5-8+% of purchase price, but can vary to a higher degree depending upon items (2) and (10), if applicable.
In summary: to successfully buy and sell real estate, additional closing costs are key. Sellers and Buyers, following the good advice of their REALTOR®, should always have extra ‘cash on hand’ for both predictable and unforeseen extra expenses, as this preparedness will greatly increase the chances of smooth and successful real estate transactions.
[Article is ©2019, ©2020 by Kelly Grant, M.Eng., ABR, NCSO, P.Eng., REALTOR® at MaxWell POLARIS in Edmonton, Alberta, Canada]
Disclaimer: for readers not represented by a REALTOR®, to obtain more information on this topic and / or if you will be selling or buying in the Greater Edmonton Area, call Kelly at 780-414-6100; text to 780-717-9290; or email SOLD@KellyGrant.ca to schedule a confidential appointment.