What Are Closing Costs

Buying a home can feel like an epic adventure, full of ups and downs.

From working with a real estate agent to viewing Calgary homes for sale to organizing open houses, it can be stressful. 

So, when closing day approaches, buyers are overjoyed and relieved that part of the journey is over. However, while finding the home of your dreams and closing the sale are major accomplishments, before you crack open the bubbly, you'll need to pay some administrative fees, otherwise known as closing costs.

What are closing costs in Alberta? Our experts will explain.

Closing Costs: The Breakdown

Closing costs are fees or expenses that the buyer owes before or on closing day. Homebuyers should budget 1.5%-4% of the property's purchase price in order to cover their closing costs. 

Here are the mandatory closing costs you can expect to encounter:

Home Inspection Fees

Buyers, like you, want to know the condition of the seller's property, so it's in your best interests to hire a home inspector long before closing day is within sight. 

Some sellers will have already gone through this process before listing their home for sale and they will provide you with the results. Depending on the type of property you have, a Calgary home inspection can range from $275-$500.

Deposit 

When buyers are interested in a property, they will provide the seller with the Offer to Purchase. As a sign that you're committed to the purchase, buyers must include a deposit, which will be applied to their down payment when the sale closes. 

The deposit is usually 5% of the purchase price, but that number can vary. This will also be paid before the sale closes.

Land Transfer Tax

Anyone in Calgary who buys a house, condo, or even land, presently is obligated to pay a land transfer tax. This is something that is seen in other provinces, because the ownership of a piece of property needs to be transferred to the new owners and they charge for this service, however, in Alberta our fees are minimal in comparison to other provinces.

Unlike other provinces, Alberta's tax is divided into two small amounts: one part applies to the property value and the other part applies to the mortgage. For both of the property's value and the mortgage, the Land Transfer Tax is a base amount of $50 plus $1 for every $5,000.

Legal Fees and Disbursements

Buying a home is a big investment, so you will have had to hire a legal professional to review the Offer to Purchase to ensure that you and the seller have met all requirements and the sale can successfully close. These legal fees include the preparation and review of all home purchasing documentation. Rates for legal representation range from $750 to $1,500+ and are often based on the purchase price of your home.

Title Insurance

Property owner disputes can arise after the purchase of a home, so title insurance acts as a way to protect new owners. Some examples include past contractors making claims against the property or a long-lost heir trying to claim the property. You can purchase title insurance through your lawyer or notary.

Property Taxes

Sellers usually pay property tax once a year, so if it's already paid by the closing date, the buyer will need to reimburse them because the buyer is obligated to pay the property taxes from the closing date  to the end of the tax year.

Note: If you're buying a home, sellers pay the real estate agent commission, which is also called a realtor listing fee. This fee is only paid when a home is sold. There is no standard amount to pay Calgary real estate agents. Each one will have their preferred way of charging commission, which could be a flat fee, a negotiated amount, or a split commission of your home's selling price. 

Learn more about that in our blog on the topic of realtor listing fees.

Other Closing Costs You May Need to Budget For

Every province and property has different laws and special fees . Buyers should be aware of these potential closing costs:

• Goods and Services Tax (GST): Many parts of Calgary are still being developed, so brand new property types are in abundance. If you buy a new property, whether as a pre-sale or a finished project, you will have to pay a 5% GST. Any new property type that is being sold for $350,000 or less means you will receive a 36% rebate.

• Septic Tank Inspection: Some older homes come with a septic tank, so its condition will need to be evaluated. The cost can be negotiated with the seller and included in your Offer to Purchase.

What Happens on Closing Day?

Congratulations! This is the day that you finally get the keys to your castle. By now, the majority of your closing costs should have been paid because it takes time for payment to go through.

On the day itself, you must have the down payment—minus the deposit—along with any remaining closing costs you owe and give them to your lawyer or notary. They will:

• Pay the seller

• Register the property in your name

• Handles over the deed and keys to you

With that, you have made a home purchase, the property is officially yours, and you can move on to the next chapter of your life.

Buy Your Property with Confidence

We know how stressful and confusing property transactions can be, so our Real Estate Partners team is here to guide you towards a closing day that will have you celebrating rather than sweating. From closing costs to finding your new home to negotiating with sellers, we're here for you.

Get in touch with us if you have more questions about closing costs, or browse our listings now!