Tuesday, May 31, 2011
What Does An Offer to Purchase and Sale of Real Estate Mean in Simple English? Part 4
Additional Costs: At some point we will have also reviewed an un-numbered page with a ton of little writing, which itemizes other ‘costs born by the Buyer/Seller’ in the centre of the page. There is an abundance of information on this page that is very redundant to what we just went over. However, I need to explain the costs for you.
First of all, keep in mind that these costs are all approximate. You are going to have legal expenses. The figure you should probably expect to pay is $800 - $1100 for legal expenses. That will cover your legal fees, your drafting documents, your land title registration fees, the conveyance of the title-basically everything your lawyer is going to do for you.
The big cash outlay that you need to be aware of is the Property Transfer Tax (PPT). There is a possibility that you will be exempted from Property Transfer Tax but you have to satisfy all of the following criteria:
1. You need to be a resident of British Columbia for at least a year.
2. You need to finance at least 70% of your purchase price, which means you can’t have a down payment larger than 30% of the cost of the house.
3. This has to be your first purchase. If it’s your first purchase for you and not your spouse, then you are eligible for 50% reduction of the Property Transfer Tax. This is something that you will have to discuss with your lawyer. Unless you are absolutely certain that you are exempt from the PPT, be prepared to pay the tax.
Property Transfer Tax is 1% of the first $200,000 and 2% of the balance. For instance, if you purchase a home for $450,000, you will be paying $7,000 in PPT. If the purchase price is $400,000, you will be paying $2000 on the first $200,000 and $4000 on the second $200,000. That makes your total PPT on a $400,000 purchase $6000.
Because mortgage rules are always changing, things may be a little different today then when this was written. REVIEW YOUR PERSONAL SITUATION WITH YOUR MORTGAGE BROKER/LAWYER.
The next important financial concern is the property tax adjustment. This is very difficult to calculate because #1, we don’t know what your taxes are going to be and #2, you have to decide whether or not you are going to pay your taxes with your mortgage payment or as lump sum at the end of the year. The amount that you pay the Seller or the amount that the Seller pays you in your Statement of Adjustment depends on the possession date that you choose.
The property inspection is another expense you will incur as a Buyer. An inspection will cost anywhere from $250 to $400. Depending on timing, it can take up to a week to book an inspection and have the completed report in your hands.
You may also need to have an appraisal done. If you are putting 25% or less down on your property, you may need to have a CMHC appraisal, which costs about $200. If your down payment is more than 25%, you may have to have a separate appraisal done and that is about $250.
Remember, the inspection and the appraisal costs will be plus HST.
Subjects/Conditions: The conditions (what you may have heard referred to as the 'subjects') are legally called the conditions precedent. What that means is that you have to be satisfied with the conditions you outlined in your offer before there is a firm deal. At this point in time, if the Seller signed this document, they cannot get out of this contract. The only person who can get out of it is you.
We have put a number of conditions on the contract for a couple of different reasons:
1. Our office has a policy that we insist on certain conditions.
2. We want to make sure that you are completely protected and are allowed to complete you due diligence to be certain the home is right for you.
Financing: The first condition is the condition of financing. We have made the offer subject to financing satisfactory to the buyers on or before (the date you agreed to).