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Preconstruction Closing Costs Explained

February 13, 2023

If you’re thinking about buying a home in GTA, do your homework on hidden closing costs that could pop up. These costs can add up quickly and cut into your budget.

Unprepared buyers risk losing the home and the down payment!

Hidden costs include attorney fees, taxes and more. While some of these costs may be negotiable before signing the purchase agreement, others are non-negotiable.

Be sure to ask your real estate agent and an experienced real estate attorney so you’re prepared.

It can be daunting to understand the intricacies of the purchase agreement. To help you prepare, we’ve written this post explaining potential closing costs.

  • What are the closing costs when buying a house in Canada?

Closing costs are the final payments before the house is yours. Most think it’s the last deposit payment, but other charges include land transfer fees and development costs. Be prepared with 8-10% of the purchase price to cushion you.

An experienced real estate lawyer breaks the chargers down in the 10-day cooling-off period. You also know which questions to ask the builder, so you’re clear on development fees, maintenance fees, etc.

There is also the cost of the upgrades, which the builder asks for two to four months before closing. Upgrades increase your home and could include a paved driveway, roof terraces, walk-in closets, etc.

If buying a townhouse, take note of the payments, which can be overwhelming due to the short payment period.

Townhouses typically are complete in 1 to 2 years compared to condos, which take 4 to 7 years.

  • Preconstruction closing costs

Preconstruction closing costs include but are not limited to utility connection, appraisal fees, HST, title insurance, landscaping, transactional fees, insurance premiums on the mortgage, and others below.  

Land transfer taxes

Ontario land transfer tax is paid by the buyer of a preconstruction home when the deed is transferred to their name. It is usually a percentage of the purchase price, and first-time buyers get some relief (credit up to $2000).

You also pay The Toronto Land Transfer Tax, and first-time buyers don’t pay the first $400,000.

Land transfer taxes keep changing, and it’s good you stay updated.

Electronic Registration Fee

The builder pays the electronic registration fee on behalf of the buyer.

Development charges and educational levy

Cities levy development charges on preconstruction projects to cover growth. These costs are passed on to the buyer. 

They use the money to build schools, improve roads, healthcare systems, etc.

Be keen on these clauses in the purchase agreement and ensure they are capped. An experienced real estate lawyer should help you interpret the terms.

Tarion warranty or HCRA fee

Tarion warranty covers your deposit in case of shoddy work. It has a seven years warranty on significant structures, compensating you for delayed construction costs.

In Ontario, some builders include it in the purchase price. 

Talk to your real estate agent or the developer to confirm if you’ll pay it on closing.

Extension of closing date fee

Should your mortgage not fall through or when your current house has yet to sell, you may ask the builder to push your closing date. That comes at a price-extension fee.

If you don’t meet all the requirements to get a mortgage, financing will not come when closing, and you’ll have to pay the builder extension fees as you get the documents right.

POTL expenses

The POTL expenses include condo fees, maintenance fees for shared things such as garbage collection, snow removal, access roads, parking levies, etc.

Contributions to a condo reserve fund for condo repairs and replacements fall here.

Legal fees

These are fees you pay your lawyer for legal advice. It is for services such as registering the title deed, transferring land on closing, preparing the statement of adjustment fees, etc. It also includes fees paid to the builder’s attorney.

Builders adjustment fees

These are adjustments on property tax, extra construction fees for requested changes, and condominium fees. 

The Takeaway: How to avoid closing costs surprises

To prevent closing costs surprises, ensure you take note of all the home construction details and check on them during the pre-delivery inspection. Take your time before taking possession of the home. 

You must confirm the development charges and other levies are capped. 

Have an experienced real estate lawyer review your purchase agreement.

Most importantly, engage a real estate agent who specializes in preconstruction.