Buying a home should be exciting, not stressful!
We want to avoid costs, especially unknown ones.
Potential home buyers tend to focus on saving for the down payment (a huge challenge in itself), sometimes forgetting about closing costs. This blog post is designed to help you learn about these costs early in the process to avoid disappointment, or worse, a cash-flow problem.
Closing costs often pay for “due diligence” activities which protect you from risk. Read on to find out what the heck I am talking about...
Homes Are Expensive in Alberta
The average home price
in Alberta is high relative to most other provinces. That is especially true here in Fort McMurray, where prices still, to some extent, represent levels of wages and employment that existed during the last boom. Here’s an interactive map from the Canadian Real Estate Association (CREA®) which shows home prices
across the different provinces.
But, there is a silver lining...
Lower Closing Costs
Surprisingly, Alberta is the cheapest province to buy a home in all of Canada.
What does that mean? It means that if you were to buy, say a $500,000 home, in each of the provinces, the closing costs would be lowest here. A range of government fees (that are usually paid through your lawyer) are lower than elsewhere, and there are no government taxes on land transfer (only GST when it applies).
One counterexample to this is the cost of tradespeople. Fort McMurray still has some of the highest labour rates in Canada (the rebuild has pushed up costs that were coming down due to the oil price slump).
What is a Closing Cost?
A closing cost is the cost of service that is required/recommended as part of the buying process. These costs are over and above the cost of the property itself.
Common Closing Costs in Fort McMurray
Fort McMurray is a city, therefore recommended due diligence for buyers is generally less extensive in urban areas versus rural ones: Most areas have municipal water supply, natural gas, wastewater systems and garbage services, etc. This removes a lot of the risks to buyers
as there fewer building systems to be inspected (for example, a house on Rainbow Creek Drive wouldn’t have a septic system)!
Here are the main 7 closing costs that we tend to see most commonly here in town:
- Legal Fees - Local lawyers generally charge approximately $700 to $1,400 for their services, but the final bill is usually up to double of that because they also pass on government fees. The bill at the lawyer is commonly $1,800-$2,400 when buying a home. If cost is a concern to you, we recommend shopping around. You can go out of town (stay in the province) for this, but we generally don’t recommend it as out of town lawyers don’t have the city-specific knowledge of real estate transactions here in Fort McMurray.
- Property Inspection - Inspectors have different levels of certification, experience and education. Commonly, an inspection costs $400-$525, but a red seal carpenter registered with the CAHPI® of Alberta, like Brian Slaney, costs $525. The extra little bit might well be worth the money if he finds more deficiencies with the home (after all, that’s what he’s there for).
We find that for most
buyers of most
homes in town, those are the only two closing costs!
- Condo Documents Review - These documents are usually supplied by sellers, but you may choose to have them reviewed by a company that specializes in interpreting them for you. This is a way to identify financial, management and maintenance risks associated with the condominium complex. The service is usually around $500. If you are buying a property from a bank, the onus is on you to pay for the documents themselves ($0-$800)!
- WETT Inspection - If the home has a wood fireplace, then you will generally need one of these. Inspectors certainly don’t recommend you ever use a wood burning appliance without a certificate, for your safety. Sometimes the sellers will provide a recent certificate, but not always. Note that in some cases insurance companies won’t insure your home without a WETT certificate, and without insurance, your mortgage company won’t release the funds on possession. A qualified REALTOR® will be able to guide you. These cost approximately $300-550
- Mechanical Inspection - Boilers, hot water tanks, sprinkler systems, etc. can be expensive if they go wrong later, and even the best home inspectors must defer to specialist trades for detailed analysis. A great plumber/heating technician usually charges $300-$500 to provide a report on all of these systems.
- Sewer Inspection - Some areas of town were built quicker than others, and while the rushed parts are now somewhat tried and tested, sewers can back up because the drain under the front of your property grades up in places instead of down. There are other potential issues with sewers (penetrating tree roots, for example), so depending on the area, clients sometimes choose to have a professional plumber “camera” the drain with a tiny camera. This usually costs around $400.
- PWF Inspection - Homes with wood foundations (approximately ⅕ to ⅓ of homes in upper Thickwood, Dickinsfield and Old Timberlea) have some benefits (warmer, cheaper, last longer) over homes with concrete foundations, but if not built to today’s standards and maintained properly (especially water management), can become expensive to fix when deficient. We never recommend buying a home with a wood foundation without a certificate. Generally these are supplied by sellers, but not always. If you are buying an “as is where is” property, say, from a bank, then you might choose to commission your own. This costs $1,500-$2,500.
One of our recommended mortgage brokers, Barb Pinsent, has written a great article on closing costs:
Understanding Home Buyer Closing Costs
You can expect to pay legal fees to cover any legal document preparation and registration associated with the Agreement of Purchase and Sale, Title Insurance, Statement of Adjustments, and the Title Transfer of the property. Also be prepared also pay any administration fees, such as courier fees.
Statement of Adjustment
The Statement of Adjustments outlines all the debits and credits owed between you and the seller. The debits will include the amounts you have already paid up until closing. The credits however, outline what is still withstanding or was already prepaid by the seller, such as the purchase price and utilities and taxes. Any of the outstanding costs indicated will be calculated into the final closing price. read more at barbpinsent.com
As you can see, the most common closing costs add up to about $2,300, but depending on the property and who you are buying it from, they can be higher. But remember that those costs are for services that are very useful. Doing high-quality due diligence protects us from unknown future expenses by arming us with knowledge early in the process. If we identify issues early, then we can negotiate fixes or ultimately leave conditional contracts before heading out once more to find your dream home.
It can seem a bit overwhelming, especially if you are a first-time buyer, but don’t worry, we have specialist buyer’s agents and their role is to take that stress away and help guide you carefully through this exciting life event!