Understanding Legal Fees and Disbursements on a Real Estate Purchase
When potential clients contact me about purchasing a property, the first question is often “how much are the legal fees”. Most people assume there is a standard rate but are surprised to learn that the legal fees charged and the disbursements incurred depend on a variety of factors. While each transaction is unique, here is a summary of the main items that will impact these costs:
- Legal Costs: The complexity of the transaction is the most important factor in what the legal fees will be. When speaking with potential clients, there are numerous questions I will ask to determine this, such as:
- What type of property are you purchasing? For example, if you are purchasing a condominium or a new home from a builder, this often requires the review of additional documents like a status certificate or the builder’s purchase agreement. These documents can be quite lengthy and require more time to review.
- Are you using a real estate agent? If you have a real estate agent, they will prepare the agreement of purchase and sale. However, if you are buying privately and require assistance with drafting the agreement of purchase and sale, there would be extra work for us to assist with this (and we can only advise on the legal aspects of the agreement, not items like the purchase price).
- What is the age of the property? Older properties can often have more issues, such as outstanding permits, missing right of ways, and wandering fences that are not on the property line. As a result, there could be extra work required to address these items.
- Is it a rural property? Rural properties can have more items of concern, such as wells, septic systems, waterfront access, and crown patents. Discussing these issues and getting further information on them can take more time than if you were purchasing a recently built home in a subdivision.
- Are you obtaining financing? If you are getting a mortgage and/or a secured line of credit, your lender will send me mortgage instructions outlining various requirements that need to be fulfilled. In some cases, the lender will have a lot of conditions to be fulfilled so that will result in more work than if you were using your own funds to buy a property (so that a lender is not involved).
- Do you have future plans for the property? If you have plans to do major renovations or build a new home on the property, there is a lot of due diligence involved in determining whether you can do what you want. If you want us to assist in doing due diligence searches or engaging with the municipality, that would be extra work beyond the purchase transaction itself.
- Land Transfer Tax: This amount is charged by the provincial government and is based on the purchase price (you can find the formula here). The higher your purchase price, the higher the amount of land transfer tax. Also, if you are a first-time home buyer, you may qualify for up to a $4,000 rebate.
- Title Insurance: This is an insurance that provides coverage for certain issues that can affect the title of your property. The premium charged is based on a variety of factors, such as the purchase price and whether you are getting a mortgage/secured line of credit.
- Title Search: This search provides information on the property, including whether there is a mortgage on title to be discharged or easements that affect the property. The cost of the search depends on the number of documents registered on title that need to be retrieved (since the government charges a fee for each document).
- Off-Title Searches: In some cases, ordering an off-title search (e.g. zoning, permit compliance, property taxes, etc…) may be advisable. The municipality and other government entities charge fees for these searches.
- Registration Costs: The provincial government charges a fee for each document registered on title as part of closing. Depending on the nature of your transaction, this can include the transfer/deed, the mortgage/charge, an assignment of rents, and other items.
While the above is not an exhaustive list, hopefully this provides some insight on the various legal costs to consider when buying a home. So, the next time you are contacting law firms on a real estate purchase, make sure to keep these factors in mind to determine if you are getting a comprehensive and accurate quote.