By Kathryn Whitehead, Associate
Every real estate client, whether they be a purchaser, seller or mortgagor, always seems mystified by how much money their real estate transaction is going to cost, and how their money is broken down and applied. To help you make sense of it all, here is a breakdown and a few tips about where your money is going.
Firstly, a portion of the total cost will always be for legal fees. In typical residential real estate transactions, the Real Estate Lawyer will provide a flat legal fee in order to complete the work requested. This is the amount you are paying to the lawyer for their expertise. It is important to note that most lawyers will reserve the right to increase their legal fees if unusual circumstances arise that require additional work outside of the normal transaction. If your transaction falls of the tracks, make sure you discuss with your lawyer how much additional legal fees, if any, may be added to the original quote provided.
Secondly, a portion of the total cost will always be for disbursements. Disbursements are costs or expenses that the lawyer or law firm pays in advance on your behalf. The lawyer or law firm will then look to you for reimbursement on closing. For example, disbursements may consist of: title insurance, title searches, tax certificates, execution searches, government registrations, photocopies, faxes, long distance, etc. It is important to note that every single real estate transaction is different and the total portion cost for disbursements will vary from file to file, but especially between purchases, sales, and mortgages. Further, some lawyers may lump together their legal fee costs with disbursement costs when giving a quote to a potential new client so make sure you ask them to break down the fees so you understand where you money is being spent.
Thirdly, a portion of the total cost will always be for HST. Unfortunately, HST is now payable on certain disbursements and all legal fees. It is important to add this extra percentage when coming up with your total transactional costs.
Finally, if you are a purchaser, make sure you discuss with your lawyer how much Land Transfer Tax is payable on the purchase transaction. The amount is calculated based on the consideration, or purchase price of the property, and is easily calculated.
Hopefully, if I have been successful, the above breakdown and various tips will give you some more insight into your next real estate transaction, and keep you on track with your budget! Always remember, if you don’t understand how your money is being spent make sure to ask!