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Category: Closing costs

  • Understanding the Statement of Adjustments and Trust Ledger

    Understanding the Statement of Adjustments and Trust Ledger

    The Most Important Documents in your Closing - Statement of Adjustments and Trust Ledger Statement.

    When you’re buying or selling a home, you will likely encounter two important documents called a Statement of Adjustments and a Trust Ledger Statement.  

    These two documents are the two that get the most attention from the buyer or seller, and are incredibly important because they help you make sense of the all costs and expenses that are associated with buying or selling a home. 

    To ensure that you manage your budgets and have a smooth closing, understanding your statement of adjustment and trust ledger are vital. They allow you to easily see the breakdown of all expenses and know decisively how much you will owe at the end of the day if you're the buyer, or how much you should expect to receive if you're the seller. 

    The way these documents are formatted is more like an accounting statement.   We know not everyone has an accounting degree, so follow along and you'll be able to understand these statement in no-time.

    What is a Statement of Adjustment?

    A statement of adjustment is very similar to your personal bank statement, however, instead of listing your personal transactions, it is a record of your Real Estate or Mortgage transaction. Statements of adjustment are used by both buyers and sellers to know exactly the proceeds they receive, or how much they owe to complete the transaction. 

    Essentially, the statement of adjustment will list the purchase price for the home followed by any additional costs that need to be added, finally subtracting any deposits already made to determine what will be the total cost at the time of closing.

    Example of a Statement of Adjustments

    Like an accounting statement, when creating a statement of adjustments, costs paid to the seller go under "credit seller". Whereas costs paid by the buyer go under the "credit buyer" column. 

    Here's an example for a residential property sold in Ontario.

    • The sale price is $500,000
    • There was a deposit of $50,000 made by the buyer
    • The seller pre-paid utilities at a cost of $500, however they only occupied the house for 150 days and need to be reimbursed for the half, therefore $250 will be credited.

    If you’re reading this correctly, the buyer will owe the seller $450,250 on closing, after accounting for the deposit and utilities adjustment.

    What is a Trust Ledger?

    Similar to the statement of adjustment, both the buyer and seller’s lawyers will create a trust ledger, this time with the purpose of showing how the money will be allocated after the closing.  If you are refinancing your mortgage, your lawyer will also prepare a trust ledger statement with the details of mortgage changes.   

    A Trust Ledger Statement is prepared for both the buyer and seller to show all remaining expenses for both parties. In the case of the buyer, after completing the statement of adjustments, the full amount payable to the seller is then moved over to the Trust Ledger Statement.

    The Trust Ledger Statement shows all of the money involved in the transaction on closing day, but also includes other costs such as legal fees and disbursements, land transfer tax, title insurance, etc. 

    For sellers, the closing costs they have are subtracted from the amount owed to them by their buyer to determine the total amount they will receive after closing (after a mortgage is paid off, for example).

    Example of Trust Ledgers

    In contrast to the statement of adjustment, a trust ledger will vary between a buyer and seller because they each will incur different costs after closing. 

    The Trust Ledger Statement shows the remaining expenses for both the buyer and seller on closing day, including legal fees and disbursements, realtor fees, land transfer tax, and so on.

    We will create an example trust ledger for the buyer in the previous example assuming he has incurred the following closing fees.

    • Legal fees - $4,800
    • Home inspection fees - $1,200
    • Land transfer tax - $12,000

    The seller's trust ledger will similarly start by bringing the price paid and subtract any associated closing costs to determine the total earnings from the sale for the seller. 

    We will create an example of the seller’s ledger assuming the seller pays the below closing costs. 

    • Legal Fees - $2,200
    • Real Estate Commission - $25,000

    As your purchase, sale or refinance transaction moves towards closing, you’ll receive copies of the Statement of Adjustments and Trust Ledger to review for accuracy.   It is important that you take the time to understand, review and ask any questions.

    If this looks overwhelming to you, rest assured that the Deeded team is here to make things easier and simpler. We walk you through all your documents and ensure that you understand every aspect of your transaction.

    Important Note: This article is not Legal Advice.  No one should act, or refrain from acting, based solely upon the materials provided on this website, any hypertext links or other general information without first seeking appropriate legal or other professional advice.

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  • The Top Real Estate Closing Costs to Consider in Alberta

    The Top Real Estate Closing Costs to Consider in Alberta

    It is too often that we get clients who are closing the purchase or sale of their home in Alberta and are surprised to find out that they did not budget for all their real estate closing costs.

    Nothing is more stressful than finding out you have to scramble to come up with more money for your closing.   Nobody likes surprises.  That’s why we are always aiming to educate our clients and partners early in the home buying or selling process.

    If you are buying or selling a home in Alberta, here are some of the real estate closing costs you may encounter:

    Legal Fees

    In Alberta, you will need a lawyer to close your Real Estate transaction.  Legal fees can range from $800 - $1500 and can sometimes include or exclude disbursements (expenses incurred by the lawyer, which are typically passed on to you such as couriers, search costs or other fees).

    When comparing legal fees, ask for an estimate of total fees you can expect to pay for your closing, including disbursements.

    At Deeded, we offer a flat fee for closings and you can calculate your full real estate closing costs on our website. 

    Adjustment Fees

    Say you are buying a home, closing in July and the seller has prepaid their full property taxes for the full calendar year.   In this situation, your lawyer “adjusts” the taxes so that you (as the buyer in this example), would owe a pro-rated portion of the expense to the seller.

    Typical adjustments happen for property taxes, condo/strata fees, or any other fees that may have been pre-paid or unpaid by the buyer or seller.

    It is important to always budget for adjustments as they can increase your real estate closing costs.

    Land Titles Fees

    The cost of transferring land title in Alberta is set by the Land Titles Act and charged by the Alberta Land Titles Office.   It is paid for by the purchaser of the property on closing.

    This fee is calculated based on the value of the property and the mortgage funds borrowed and can be several hundreds of dollars.

    We offer a Land Titles calculator, along with calculating any other closing costs on our website.

    Real Property Report (RPR)

    A Real Property Report (RPR) is a legal document that clearly illustrates the location of significant visible improvements relative to property boundaries.  A seller will typically have to obtain an RPR as a condition of their sale.

    The amount of work (and cost) to prepare a Real Property Report varies between properties. Lot size and shape, number of buildings, natural features, age and availability of the property boundary information all affect the cost.

    Estoppel Certificate Fees

    You need this certificate to purchase a strata unit or a condominium in Alberta.  The estoppel certificate typically costs around $200 and shows you if outstanding interest is due from the previous owner, or if there are any unpaid condo contributions or interest that is due.

    Title Insurance

    Title insurance protects you from unknown title defects (title issues that prevent you from having clear ownership of the property).  For example, existing liens against the property’s title , encroachment issues (e.g. a structure on your property needs to be removed because it is on your neighbour’s property), and Title fraud.

    Title insurance is often recommended, but is optional. The cost of a title insurance policy in Alberta can range from $200 and up, depending on the value of your property and could be a worthwhile investment for peace of mind.

    Property Insurance

    If you are borrowing money for your home, your lender will typically require that you have a certain level of insurance coverage on your home and ask for proof of insurance (also known as an insurance binder), prior to closing. Without insurance, a lender will typically not advance the mortgage funds to the lawyer.

    It is a good idea to call your insurance broker and shop around a few weeks prior to closing.

    Finally, it is important to mention that your fees can vary depending on the property, location and situation. Contact the Deeded team and we’d be happy to give you a more accurate estimate.

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  • Land Transfer Tax. What Is It and How To Budget For It.

    Land Transfer Tax. What Is It and How To Budget For It.

    You’ve signed on the dotted line and your offer was accepted.   Congratulations on your new home! As you start readying your finances for closing, one of the top items that first-time home buyers forget to budget for is the land transfer tax (LTT for short).

    What is The LTT?

    Buyers of houses and condos in Ontario pay LTT when they purchase a property. Buyers who are purchasing a property in the City of Toronto also get to pay the Toronto LTT, on top of the Ontario LTT amount.

    With rising property pricing the LTT can be significant.  To give you an idea, on a $1M property in the City of Toronto, you’d be paying $32,950 in LTT.  This amount is due on closing and is collected by your lawyer and remitted to the government.  The LTT applies to all properties:  resale or new construction.

    The land transfer tax amounts are calculated on a sliding scale formula, but to make things easier, use our simple Land Transfer Tax calculator where you can plug in your purchase price and save yourself the number crunching. 

    There is some good news for first-time buyers.  You may qualify for a rebate equal to the full amount of your LTT, up to a maximum of $4,000.

    Do I Qualify for the Ontario Land Transfer Tax Refund?

    To qualify for the Ontario Land Transfer Tax Refund for First-Time Homebuyers, you must meet the following criteria:

    • • You must be a Canadian citizen or permanent resident of Canada,
    • • You must be 18 years of age or older,
    • • You must live in the home within 9 months of purchasing it,
    • • You cannot have owned a home before, and
    • • If you have a spouse, they cannot have owned a home during the time they have been your spouse.

    If you’re planning on buying a house or condo, make sure you’ve budgeted for land transfer tax.

    Important note: This article is not Legal Advice.  No one should act, or refrain from acting, based solely upon the materials provided on this website, any hypertext links or other general information without first seeking appropriate legal or other professional advice.

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  • Why Skipping The Home Inspection Can Be a Bad Idea

    Why Skipping The Home Inspection Can Be a Bad Idea

    Your heart is beating fast.  You just submitted an offer to buy the home of your dreams.  You sign the offer, and your agent submits it.  Now the waiting game begins and your emotions are entering “rollercoaster mode”.

    Your agent calls you back 2 hours later with some bad news.  The property you made an offer on has 12 other registered offers and it is an all-out bidding war.  The seller agreed to review offers on Sunday night and will choose the best one.

    While one of the tactics to “sweeten up” your offer is to raise the amount of money you’re offering, it may also be tempting to waive certain (or sometimes all) conditions in order to provide the seller with more certainty.  If you haven’t negotiated for a home before, conditions are clauses that are inserted into an offer of purchase and sale that make the transaction conditional on certain terms or obligations that are to be fulfilled by either parties.

    Conditions on an Offer

    Some examples of most common conditions are financing (or the buyer’s ability to secure a mortgage), a home inspection or a lawyer’s review of the agreement. There are dozens of other conditions that may be inserted into an agreement and in theory, you can make your purchase contingent on anything you can imagine, however, the more conditions you have, the less likely the seller will have certainty that you are serious and will see the transaction through.  

    This is especially true if a seller is reviewing multiple offers. An offer with less (or without) conditions, will likely be seen as more attractive by a seller. As tempting as it may sound to go “all in” and waive all conditions when you’re competing to buy a property in a hot market, it can turn out to be a really bad idea.

    One key example is an inspection condition.  It is common to have a condition in the agreement of purchase and sale that allows the buyer to have the home or condo inspected by a professional home inspector within a few days of the seller accepting their offer. Depending on the inspector’s findings and report, buyers can identify potential issues with the home or at the very least, be made aware of existing and future issues.

    Waiving, or not including the home inspection condition essentially puts the risk on the buyer.  If the home has any issues after closing, the recourse against the seller may be very limited. 

    Do I Really Need an Inspection?

    While it may be tempting to skip the inspection in order to make your offer more competitive, keep in mind that no matter the property’s age and appearance, there may be underlying issues that were not visible during showings. 

    There have been situations where hundreds of thousands of dollars of repairs were needed in a property.  From remediating mold caused by previous leaks, all the way down to structural issues that needed serious repairs.  As a buyer, skipping on an inspection or not hiring a reputable home inspector, means taking a chance that can add up to huge liabilities down the road and turn your dream home into a nightmare.

    Keep in mind that pre-existing issues will likely not be covered by your home insurance or title insurance and proving that the seller knowingly hid defects or damages may be tough to explain in court given that you’ve knowingly waived the opportunity to have the property inspected.

    Do Home Inspections Need To Be Done By Professionals?

    As tempting as it may be to waive an inspection condition to have your offer accepted, it can turn into a very expensive gamble.  Just as important is hiring a qualified home inspector perform a detailed inspection and provide you with a comprehensive report of their findings. 

    While you may have an uncle who is a plumber, or maybe you consider yourself pretty handy, a professional home inspector will go through a very detailed checklist of all the structural, finishes and systems of a home. An inspection can cost $250 - $1000 depending on the property and area. It may be an additional expense, but it is a worthwhile investment.

    In addition to having an inspection condition and conducting the inspection, there may be a few weeks from the time you complete the inspection until you close and move in.  During that time period, appliances can break, and other damages may be caused while the seller still occupies the home.

    One way to reduce such risks is to request a reasonable amount of re-visits to the property prior to closing as one of your conditions.  Use your last allotted visit to the property to perform your own visual inspection a few days prior to closing, or if you choose, you may bring an inspector or professional with you to the final visit prior to closing.  

    Have a quick look for damages that you may not have noticed before inside and outside the home. Ask the seller if it is possible to turn on all the appliances (if they are included in the sale) to ensure they are in good working order. Turn on taps, showers and lights and note any issues.

    If anything is amiss on your final walk-through, document it and contact your lawyer as soon as possible.

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  • Title Insurance.  What is it and Why You Need It.

    Title Insurance. What is it and Why You Need It.

    When purchasing a new property, you may be looking to save money wherever you can. One of the costs you may come across is for title insurance. You’re probably thinking “heck, another unexpected cost!”.   For the few hundred dollars that title insurance costs, we think it’s a “no brainer” and will let you sleep at night knowing that you’re not on the hook for some big expenses should things go sideways with the title to your property.

    Title?  What’s that? (in English please)

    Your property’s title is legal proof that you are its owner. It describes your rights to the land and any limitations like giving your local phone and power companies legal right to construct, repair, replace and operate wires on a section of your property.

    Your title lists the legal owners, any registered mortgages and/or liens, describes any easements (someone like the cable company that may need access to your land) , and provides many other important details. 

    So What’s Title Insurance?

    While this sounds straightforward, your home’s title can be subject to issues that can arise.   What sort of issues? For example, what if the previous owner built a shed that sits on the neighbour’s property which now needs to be torn down.  That’s covered by title insurance. 

    What if the previous owner didn’t pay his contractor and ended up with a lien on the house?  That’s covered too.  

    Discover that someone has fraudulently gotten access to your title and took out a mortgage?  Title insurance has you covered.

    What Else Does Title Insurance Cover?

    We always recommend checking your specific policy for the details, but in general, here’s what you are covered for when you take out a title insurance policy:

    • • Unknown title defects (title issues that prevent you from having clear ownership of the property);
    • • Existing liens against the property’s title (e.g. the previous owner had unpaid debts from utilities, mortgages, property taxes or condominium charges secured against the property);
    • • Encroachment issues (e.g. a structure on your property needs to be removed because it is on your neighbour’s property);
    • • Title fraud;
    • • Errors in surveys and public records
    • • Other title-related issues that can affect your ability to sell, mortgage, or lease your property in the future.

    Do I Have To Pay An Ongoing Premium?

    Actually, title insurance is quite the “bargain” in that there are no ongoing premiums, just a one-time premium that covers you for as long as you own the property. Most residential title insurance policies extend coverage to your heirs through a will, to a spouse in the event of a divorce, or to children when the property is transferred from parents to children for nominal consideration. 

    How Much Can I Expect To Pay?

    A one-time premium cost about $350 for a $500,000 home and goes up based on the price and type of property.  The peace of mind that knowing your greatest asset is protected is probably well worth the money.

    How Do I Get a Policy?

    Your lawyer will typically apply for, and include a title insurance policy as part of your purchase or refinancing, so there’s little to nothing you need to do. When you get the closing documents from your lawyer, your policy documents should be included within the package.

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