Disbursements on a Residential Real Estate Purchase
Many people are shocked when they learn how much money they need to provide their lawyer for a real estate transaction. “I don’t get it,” they will say to me, “I’m already paying six (or more) figures for a house, why are there all these additional charges I didn’t know about?”
While one part of the charges is for the lawyer’s service to complete the transaction (Click Here for Jackson LPC’s rates), the majority of the charges are usually disbursements – expenses your lawyer incurred on your behalf. This article lists and explains the most common disbursements in a residential real estate purchase where the purchaser has opted for title insurance. Additional articles covering a residential sale and residential refinancing will follow.
Please note that as Jackson LPC cannot control fees charged by outside organizations. These disbursements are only intended to be estimates to provide a general estimate. Disbursements also vary based on the individual circumstances of a purchase. Some of these disbursements are also subject to HST. The fees listed below are based on a real estate transaction for an average single family home or condominium in the City of Ottawa as of the date of this article.
Land Transfer Tax
Whenever a person acquires land, they are required to pay a Land Transfer Tax to the province of Ontario. This tax is based on the purchase price of the home. First time homebuyers may be eligible for a Land Transfer Tax rebate of up to $4,000. The government uses the following formula to calculate Land Transfer Tax:
|Purchase Price||Land Transfer Tax Calculation|
|up to and including $55,000||Purchase Price × 0.005|
|above $55,000 and up to $250,000||(Purchase Price × 0.01) – $275|
|above $250,000 up to $400,000||(Purchase Price × 0.015) – $1,525|
|above $400,000||(Purchase Price × 0.02) – $3,525|
|above $2,000,000||(Purchase Price × 0.025) – $13,525|
HST (New Builds and Special Circumstances Only)
All newly built homes purchased from builders will be subject to harmonized sales tax (HST). However, if the home you are purchasing is going to be your primary residence, you could be eligible for a federal tax rebate of up to $6,300 and a provincial tax rebate of up to $24,000. Some homebuilders automatically deduct this rebate from the purchase price of your home. If your builder does not offer this, you have two years from the date of purchase to apply for a rebate from the Canada Revenue Agency.
Most resale homes will not have HST applied to the purchase price. There are a few exceptions to this rule. One of the common exceptions is that if the original purchaser was a corporation that did not pay HST on the home. The second common exception is when the home has been substantially renovated. The Canadian Revenue Agency provides the following guidance in determining whether a substantial renovation has taken place:
Major changes have to be made to meet the definition of a substantial renovation. In a major renovation project, the interior of a building is essentially gutted. This type of renovation project qualifies as a substantial renovation. Generally, 90% or more of the interior of an existing house is the minimum that has to be removed or replaced to qualify as a substantial renovation.
If you are still unsure as to whether or not your purchase is subject to HST, talk to your lawyer.
A status certificate contains important information about a condominium unit you are purchasing and its associated condominium corporation. This document tells you whether the current property owner is up to date with condo fee payments, the financial status of a condominium corporation, as well as the condo declaration, bylaws, rules and restrictions.
Status certificates are typically only required for condominiums. However, some single family homes are also subject to Joint Use Agreements, where a homeowners or community association manages the maintenance and insurance of certain lands or structures. Common examples of what is covered under joint use property are the shared elements on a townhouse complex (such as the firewalls and roof) or local parks and recreational facilities. These agreements are extremely common in newer neighborhoods across Ottawa. Therefore, status certificates are becoming a more frequent requirement on non-condominium transactions.
$150.00 – $400.00 + HST
A title search is the process of retrieving documents related to the property you are buying. The search ensures that the seller actually has the right to sell the property, and checks if there are any encumbrances on the property. Encumbrances are claims on the property that would prevent its sale. Common examples of encumbrances are mortgages and liens.
Many law firms, Jackson LPC included, use a title search agent for this process. Since these agents are experts in title searching, they are much more efficient than your average lawyer, resulting in lower costs. The majority of the agent’s fees are usually their own disbursements, as they have to pay to obtain the documents they need to confirm title and encumbrances.
$125.00 – $400.00 +HST
Title insurance is a unique form of insurance separate from your general homeowner’s insurance policy. It ensures you legally own your home and covers for losses against undetected or unknown title defects.
Almost all real estate transactions today are title insured. Prior to title insurance becoming available, lawyers would have to do a much more extensive legal search on the property in question and provide an opinion to the buyer as to whether or not he or she would have good title. Further, a surveyor would have to be hired to produce a new survey which would have to be reviewed by the lawyer. As a general rule, the expense of these disbursements would exceed the cost of any title insurance policy. Furthermore, so long as a lawyer was not negligent in conducting the searches, it often meant that property owners were left without a remedy when there was a title defect.
There are a number of title insurance agencies in Ontario. A lawyer can arrange title insurance for you as part of your transaction.
$11.60 per person
Executions searches are performed on every person selling a property (including businesses or corporations) and on all purchasers who will be obtaining a mortgage. An executions search shows if a person has a writ issued against them. A writ is an order by a court or another statutory authority that allows a creditor to have a person’s assets or property seized and sold to satisfy an unpaid debt.
$75.27 per document
To complete your purchase, a deed in your name is registered in Ontario’s land registration system. If you have a mortgage, that mortgage is also registered as a separate document in the land registration system.
$20.00 + HST per transaction
Most firms use specialized real estate software to help them keep the transaction and all the related documents organized. Jackson LPC uses Do Process Software’s Conveyancer, which charges for each transaction done through the program.
Electronic Mortgage Processing Fee
$25.00 + HST per Mortgage
Prior to electronic mortgage processing, hard copies of mortgage paperwork had to be delivered to lenders. Electronic mortgage processing has streamlined this process.
$40.00 – $60.00 + HST per transaction
As a general rule, couriers are required to process a real estate transaction. Couriers pick up documents at locations outside the office, and transfer bank drafts, documents, and keys between lawyers.
$15.00 – $30.00 per transaction
Lawyers use either certified cheques, bank drafts or wire transfers to ensure the transfer of money is secure. These types of transfers are subject to additional banking fees.
General Office Expenses
Many lawyers will charge for general office expenses such as printing and photocopying of documents. Jackson LPC includes all office expenses in its flat rate fee.
Disclaimer: This blog is made available by Jackson Law Professional Corporation for educational purposes only. Its purpose is to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog, you understand there is no lawyer-client relationship between you and Jackson Law Professional Corporation or any of its employees or representatives. This blog should not be used as a substitute for competent legal advice from a licenced lawyer in your jurisdiction.