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Closing Costs and Their Impact on Condo Prices

BY Oliver Triskan/August 5, 2021

After purchasing your dream condo in an amazing location, you feel like you’re on cloud nine. However, what some people don’t know is that there is an extra fee added to the purchase price called closing costs.

These costs usually range between 3% and 5% of the purchase price but can be higher depending on various factors. To avoid the surprise of these increased charges, do your research about closing costs before signing any agreement.

Some examples of closing costs are listed below:

  • Loan application fees
  • Legal fees and disbursements
  • Appraisal fees
  • Inspection fees
  • Land transfer taxes
  • Title insurance
  • Prepaid fees such as homeowners’ insurance, interest, and mortgage insurance

These closing costs will vary for different condos depending on a few factors, such as the condition and location of the condo. Also, most of the fees are performed by third parties that will have different prices, whether it’s for the inspections, title insurance, or the legal matters.

The closing costs are slightly different when purchasing a pre-construction condo. If you understand the concept and account for the extra costs, the fees will be more tolerable. The biggest things to know are: the highest and most common closing costs, to cap as many costs as possible, and that closing costs for the most part are increasing annually (la Fleur, 2021).

The most expensive and common closing costs for pre-construction condos are land transfer taxes which are 1% for any unit under $350k, but over 1% in large cities such as Toronto when the unit is over $350k. Development charges are the next large cost which start off at $5,000 and can get to over $20,000. These charges have increased drastically over the past few years. Another large closing cost are the legal fees charged by an attorney, which are usually around $2,000 but can vary.

To minimize the amount you get charged, be sure to cap closing costs whenever possible. To cap the closing costs, you and the developer agree on a maximum that they can charge you when closing the property. This can save a lot of money and reduce the chances of the property being out of your budget.

When purchasing a pre-construction condo that will be complete in three years, take into account that the closing costs are increasing annually. For this reason, be aware of the fact that the closing costs you’ll need to pay in three years will most likely be quite higher.

Putting it into perspective, if the agreed upon price for the condo was $400,000 and there is a closing cost of 4%, you will need an additional of approximately $16,000 for closing costs. So, when purchasing a condo be sure to keep closing costs in mind and put aside enough capital to make the purchase.

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