A young couple is in a conference room with their lawyer. They can hardly contain their excitement as they are about to sign documents to close on their first home purchase. However, when their lawyer discloses to them the amount of funds required to close, their excitement turns to displeasure. Through all the excitement leading up to the big day, the couple had forgotten about other costs that they had to pay on top of the purchase price, which their lawyer had told them about.
This young couple’s experience is unfortunately common among many homebuyers. In Nova Scotia, the unpleasant realization of spending more money than anticipated to purchase a home can originate from several sources. Excluding legal fees and real estate commissions, this blog will shed light onto “hidden” costs that homebuyers often forget about.
Deed Transfer Tax
One of the biggest “hidden” costs to homebuyers in Nova Scotia is deed transfer tax. This can come in two forms. There is (1) Municipal Deed Transfer Tax (MDTT) and (2) Provincial Non-Resident Deed Transfer Tax (PDTT).
MDTT rates are determined by municipalities and calculated as a percentage of the purchase price of the property. For example, the current MDTT for Halifax Regional Municipality (HRM) is 1.5%. Say the young couple purchased their home for $450,000. An extra $6,750 will subsequently be added to their homebuying costs.
As of July 1, 2023, the PDTT will apply where residential property of three or fewer dwelling units is transferred to non-residents who do not intend to move to Nova Scotia within six months of the closing date. The PDTT is calculated as:
5% x the total ownership interest being transferred to non-residents x the greater of the purchase price or the property’s assessed value.
PDTT will apply in addition to the relevant MDTT. For example, assuming the HRM MDTT rate applies, the purchase price is greater than the assessed value, the young couple are jointly purchasing the home 50/50, and they are non-residents but only one intends on becoming a resident within six months of closing, the young couple will be required to pay in transfer taxes:
MDTT = $450,000 (purchase price) x 1.5% (HRM MDTT rate) = $6,750
PDTT = 5% (PDTT rate) x 50% (ownership interest transferred to non-resident) x $450,000 (purchase price) = $11,250
Total = $6,750 (MDTT) + $11,250 (PDTT) = $18,000
Talk about a housewarming gift! For more information see: MDTT Information, PDTT Information (for information regarding Agreements of Purchase and Sale and other transfers signed before July 1, 2023), Municipal Government Act (for definition of “dwelling unit”).
Recording Documents
There is a $100 filing fee to register documents with Nova Scotia Land Registry. This includes a $100 fee for the recording of deeds and mortgages. Some documents are exempt from the filing fee. For more information see Nova Scotia Land Registry Fees.
Title Insurance or Location Certificate
Either a location certificate or title insurance is required when purchasing residential property in Nova Scotia. Title insurance can be purchased to cover the owner’s interest in the property and is most often required to cover the lender’s interest. The purchase of title insurance is a one-time policy purchase at the time the property is bought and covers the policyholder for as long as they own the property. Title insurance will cover defects in an owner’s title that existed at the time of closing but are discovered after the transaction is finished.
Examples of defects that title insurance would cover are, among other things, encroachments, easements, boundary issues, and building permit issues. A title insurance policy will step in to pay the costs of, for example, taking down and repairing a structure that was illegally built without a building permit. More significantly, the title insurance provider may purchase the property to fix the issue for a homebuyer. The price of title insurance differs between lenders, but usually costs a few hundred dollars.
A location certificate can operate in place of title insurance. Generally, a location certificate costs more than title insurance and identifies physical defects in the title. A location certificate allows buyers to deal with issues before closing. It will reveal issues, such as encroachments, which allows the buyer to ask the seller to remedy the problem. Sometimes the seller will be unable or unwilling to remedy the problem. The buyer will then need to decide whether to accept the property as is, knowing they will need to disclose the issue in the future if they sell the property, or terminate the deal.
Property Taxes
If the seller has already prepaid the current year’s property taxes, homebuyers can expect to have the property taxes adjusted for the portion of the year in which the buyer owns the property. There is also a fee for requesting a tax certificate from the relevant municipality, which allows the buyer to see how much outstanding tax there is on the property.
Oil and Propane
If there is an oil or propane tank on the property, the seller is responsible to top the tank up. The buyer will then be responsible for paying the seller for the value of the full tank.
Condominium Fees
Like property taxes, if the seller has prepaid condominium fees for the year, or for the month, homebuyers will be expected to reimburse the seller for the portion of the year or month in which the buyer owns the property.
In summary, homebuyers at the outset should ask their lawyer and real estate agent about what costs they should expect to pay at the time of closing. Taking note of “hidden” costs and keeping them in mind leading up to closing is a good way to minimize the unpleasant realization of needing to pay more. Some of these costs will be difficult to precisely pinpoint at the outset of the transaction. However, these professionals can approximate costs, or make homebuyers aware of future adjustments, so that the unpleasant realization is not an unexpected one that takes away the joy of purchasing a new home.
Looking for Guidance?
If you think you need assistance navigating a property purchase, or have any further questions about real estate transactions, please contact our Real Estate team here at BOYNECLARKE LLP.