Sticker shock: Hidden costs first-time homebuyers should know about
Along with the minimum deposit, there are fees on top of fees — before, during and after the actual purchase.
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First-time homebuyers are often surprised at all the extra costs involved in purchasing a home. Along with the minimum deposit, there are fees on top of fees — before, during and after the actual purchase. We talked to Michelle Comens, who left the city’s VFX industry for the Lower Mainland real estate world 12 years ago, about these hidden costs.
Q. Do you work with a lot of first-time homebuyers?
A: I do. Some years it’s a third of my clientele. Recently I’ve had a lot of people moving here from Ontario and L.A.
Q: Are your Los Angeles clients from contacts you made from your TV and movie work?
A: Yeah, a few as a result of referrals from some Sony people.
Q: I guess for people who are earning in the high six figures incidental costs don’t matter.
A: Well, it all adds up. The Property Transfer Tax is huge. People who aren’t from B.C. don’t know about it. That’s a pretty hefty little thing to add on. (The PPT is one per cent of the fair market value up to and including $200,000, two per cent greater than $200,000 and up to and including $2 million, and three per cent of the fair market value greater than $2 million.) That’s probably the biggest surprise to people.
Q: Why isn’t there more outrage over this?
A: I don’t know. When I bought my first house in 1996, and a house then was $250,000, the tax didn’t seem outrageous. It’s the same tax but now that the numbers are much bigger, maybe the attitude is, “Well, we’ve kept the same tax rate. So what’s the problem?” But it’s a huge cash grab. Even if you own something and you want to put your partner on title, if they’re going to become a 50/50 owner on an investment property they have to pay a property transfer tax on that. I had a set of clients where the mom and the daughter basically traded houses. They had to trade on paper and both pay the tax.
Q: Is there any way buyers can mitigate inspection fees?
A: If you’re buying a condo, a lot of them have depreciation reports. Those are basically a 30-year-outline of what’s coming up in the building. Those are super helpful because what’s going to happen in the building is going to be your main expenditure rather than what’s happening in the physical unit. What a lot of buyers are doing is reading everything beforehand and doing inspections before they even make an offer, and then they might not get the place.
Q: The initial deposit isn’t necessarily a surprise though, is it?
A: That can be a tricky thing for people to come up with sometimes. I let them know that they’re going to need access to those funds quickly. It’s something you need to come to the table with for sure.
Q: What about legal fees?
A: I often recommend going with a notary rather than a lawyer. If the closing is straightforward, the notary will do the land title, move the money around, all of it. My experience with them over the years has been excellent.
Q: Do buyers have to pay if there’s a rush for strata documents?
A: This is a huge cash grab by strata management companies. The rush fee can be $300 and you’re paying for the documents as well. But the listing agent will pay that.
Q: Then after the purchase there are things like insurance and property tax.
A: Insurance can be a big surprise to people, especially when you’re dealing with a strata. Part of your strata fees are paying for insurance for the building. Most stratas require you to have your own liability insurance. That can be tricky to get if the deductible on the strata is high. That’s something you want to look at — how much are the deductibles for strata insurance, and how much is your own insurance going to cost.
What I recommend for buyers is to do a simple Excel spreadsheet and plug in your numbers so you know what your monthly costs are. The big numbers can be scary but if you know what your mortgage rates are going to be, what your monthly cost is going to be, your strata fees, your insurance, then you’re in a better position. If you end up in a multiple offer situation where you’re having to go up by $10,000 increments you can look at it like, “Well, that’s about $40 more a month.” You know what your max is, you have all of those costs worked out.
Q: Should first-time buyers consider mortgage cancellation fees?
A: It’s something you should think about when you’re setting up your lending. Is it going to be at least a five-year hold, great, go for a five-year fixed rate. But if you might be selling or adding somebody it’s wise to think about what you’re doing. Those cancellation fees can be really high.
Q: What do you recommend if a buyer is thinking about renovations?
A: Sometimes I’ll have a contractor come in before we even put in an offer. Then the buyer has an idea of the cost and they can add that to their mortgage. And some stratas require permission, and then you might need to get a building permit that will cost. These things can really add up, too.
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Metro Vancouver’s first-time homebuyer‘s guide -
10 terms first-time B.C. homebuyers need to know -
Buying a condo? Watch for these red flags in the strata minutes -
Buying a home: 5 tips if you end up in a bidding war -
How to find your first realtor: 3 things to look for -
A look at financial help and incentives for first-time homebuyers in B.C. -
Old, newer, or newest? The pros and cons of purchasing an older versus newer condo
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