Key Takeaways
- Closing costs come with pre-construction purchases so there is additional purchase cost. These costs typically add 5-7% to the purchase price and can be somewhat concealed. With awareness and preparation, you can avoid those surprises.
- Large portions consist of land transfer tax, development charges, HST and legal fees. These costs are very different than those for resale properties.
- Homebuyers must be ready for other expenses like utility connections, moving costs, and home insurance. Understanding these costs in advance will ensure they are completely prepared.
- Closing costs can fluctuate wildly. Factors such as the purchase price, the subject location, and if there are any developer incentives come into play. Evaluating these early on can save you from greater financial burden down the road.
- As with almost everything in pre construction, proactive planning is key. Thoroughly research all potential costs, develop a realistic budget, and work with knowledgeable professionals to help avoid unexpected expenses and alleviate financial burden.
- One thing that makes the entire process infuriating are the unexpected hidden fees that pop up. By being aware of these risks, buyers can do their part to stay alert, question everything, and review all contracts and legal documentation with scrutiny.
What Are Pre-Construction Closing Costs?
Pre-construction closing costs refer to the additional expenses a buyer incurs when finalizing the purchase of a new construction condo. These costs are in addition to the purchase price and usually come up at final closing after the occupancy period. Buyers can make sure to account for these costs as they should run from 8% – 10% of the purchase price.
The Statement of Adjustments should show the pre-construction closing costs. It lists out all the different fees, from Land Transfer taxes to reserve fund contributions and an array of other charges. For instance, Land Transfer Taxes can sucker punch you from the municipal and provincial levels.
Depending on the value of the property, these taxes can be up to 5% of the purchase price. In Ontario for example, buyers have to deposit into the condo’s Reserve Fund - usually two months’ worth of condo fees, often $1,200 or so. Unexpected costs can figure heavily into pre-construction closing costs.
Utility hookup fees, Tarion Warranty Enrollment Fees, deposit administration and HST on appliances can easily add $4,000 – $5,000 to your overall cost. Keep in mind that these expenses are an integral component of your overall monetary obligation.
Often, this means at least a 20% down payment on the purchase price. A lot of buyers are unaware that some of these charges are required and non-negotiable. This includes the Tarion Warranty Enrollment Fee and site reviews by Tarion.
On the plus side, final closing costs are eligible for an HST rebate, giving you some financial cushion. Proper payment for these fees is usually in the form of a certified cheque or bank draft and can make for a seamless closing transaction.
Key Components of Closing Costs
Closing costs for pre-construction homes typically run 5%-10% of the purchase price. That’s no small sum, so homebuyers can’t afford to overlook this expense. Here are some of the key components:
Like many other provinces and territories, in Ontario, buyers have to pay a land transfer tax calculated on the value of the property. For Toronto properties, there is a municipal land tax. On a $500,000 property in Toronto, this could represent more than $10,000 in combined land transfer taxes.
These fees cover the cost of new infrastructure and community improvements. Development charges are another $12,000 give or take depending on the municipality. Most new builds are subject to HST. Though some of this is refundable for primary residences, buyers should work with their settlement attorney to know if they are eligible.
Legal representation is critical for navigating these transactions. We have a fixed closing cost model that makes this easy, with buyer’s legal fees typically in the $1,500 to $2,500 range. This fee, paid to the Tarion Warranty Corporation, contributes to important warranty coverage, including protection against structural defects for up to seven years. The fee is usually based on the purchase price.
Most condo buyers are paying into the condo’s reserve fund. This non-refundable contribution typically is equal to two months’ worth of condo fees - about $1,200. These include utility hookup fees, HST on appliances, and administrative charges, which together can add approximately $4,000 to $5,000.
Depending on the area you’re purchasing in, buyers can come across park levies, community improvement fees, or education levies for newly developed communities. First-time buyers should keep in mind that mortgage insurance will be required if their down payment is less than 20% of the home’s purchase price.
With
property taxes in Toronto at an average of 0.75%, purchasers will be looking at about $5,000 per year on a $500,000 home.
Additional Closing Costs to Anticipate
First, there are additional closing costs - things like inspections, the appraisal, and other miscellaneous fees - that can add up to another $4,000 to $5,000. Lastly, expect to meet utility connection fees and Tarion Warranty Enrollment Fees. Further, be on the lookout for Deposit Administration and Discharge of Construction Mortgage fees.
Other items increase this total, one of which being Tarion’s site visits. The Electronic Registration Fee tariffs and HST on appliances further exacerbate this. These are just some of the unavoidable aspects of closing a deal on a pre-construction property.
Next,
buyers need to consider Land Transfer Taxes, which could make an enormous dent in the bottom line. In Toronto that means accounting for municipal and provincial taxes, which can add upwards of 5% of the Toronto purchase price. For instance, with a $600k condo, this can be a significant chunk of your closing costs.
If you’re buying a condo, be prepared to add to the condo’s reserve fund. This contribution typically equals two months’ condo fees, or around $1,200. Monthly condo or maintenance fees - typically between $0.50 and $1.00 per square foot - begin during the interim occupancy period.
These fees, usually paid in instalments through post-dated cheques to the developer, are indicative of what your monthly carrying costs will be one day. Don’t forget the legal fees, which could be as low as $1,500 to $2,500, all in on your lawyer, including out-of-pocket costs your attorney incurs.
That’s where we come in, offering fixed closing costs that are predictable and transparent, with no surprise legal costs. Add home insurance, too, which you’ll pay as part of your monthly mortgage to protect your home.
For a $600,000
pre-construction condo, that could mean total closing costs of 8% to 10% of the purchase price. That’s $48,000 to $60,000 in closing costs you might be paying. By anticipating these costs in advance, buyers can protect themselves from unexpected surprises and have greater confidence in their purchasing decision.
Pre-Construction vs. Resale Closing Costs
Pre-construction closing costs frequently include added fees that resale buyers wouldn’t run into, making it more complicated to budget. For instance, Tarion Warranty fees are based on the value of the property - costing anywhere from $661.05 to $6,780. These protections provide seven years of coverage for major structural defects or workmanship issues, providing long-term peace of mind.
Ontario buyers specifically need to consider HST, which is around 13% of the price paid for the house. On top of that, they need to factor in utility meter connection fees, parkland levies, and condo maintenance fees usually $0.50-$1.00/sf. All of these expenditures can accumulate quickly, with pre-construction closing costs usually exceeding 5-10% of the property!
To make matters worse, buyers of new builds can be hit with HST on bonus items such as appliances or upgrades, increasing their costs even more. Unlike new-build properties, resale properties are usually free from surprise fees and charges. Closing costs for resale homes are generally between 2.8% and 4% of the total mortgage.
Resale buyers need to ready themselves to absorb property taxes, particularly in areas with high value properties where they can be prohibitively large. Moreover, they are often hit with utility setup fees of $500-$1,500. They typically receive government rebates like the Ontario New Home Buyer Rebate. This program provides up to $4,000 in savings there!
These benefits combined create a more predictable and lower resale closing cost.
| Closing Costs |
Pre-Construction |
Resale |
| Warranty Fees |
$661.05–$6,780 (Tarion Warranty) |
N/A |
| HST |
13% on purchase price |
N/A (rebate available for new homebuyers) |
| Utility Setup Fees |
Included in additional charges |
$500–$1,500 |
| Maintenance Fees |
$0.50–$1.00/sq. ft. |
Typically not applicable |
| Property Taxes |
Deferred until home is built |
Immediate and based on property value |
| Rebates |
N/A |
Up to $4,000 (Ontario New Home Buyer Rebate) |
Consider pre-construction purchases before you start planning. Aside from the increased expense, the timing of these payments can be more uncertain than resale. We work together in close partnership with our clients to ensure understanding.
With us, you’ll enjoy fixed closing costs and a dedicated guide who gives the entire process a human touch.
Factors Influencing Total Closing Costs
The condo purchase price is the biggest factor affecting closing costs. For Ontario, the Harmonized Sales Tax (HST) is 13%. This total of 13% includes 5% for the federal Goods and Services Tax (GST) and 8% for the provincial Sales Tax (PST). If you put down less than 20%, you’re required to have mortgage insurance. The insurance usually costs about 2.8% – 4% of your mortgage.
Buyers should consider the land transfer tax, which in Ontario is based on a sliding scale. For instance, the base rate begins at 0.5% for homeowners with a mortgage under $55,000. It then climbs gradually up to 2% for amounts over $400,000 to $2,000,000. First-time homebuyers may be eligible for rebates, such as the Ontario Land Transfer Tax rebate. This program provides the greatest savings - up to $4,000!
Other costs include the Tarion Warranty Fee. This fee ensures your investment comes with industry-leading warranties that cover defects and structural issues for one to seven years. While this fee is indeed non-negotiable, it provides new homeowners with valuable peace of mind.
The last deposit is the most important. It usually comes due during their interim occupancy or at final closing and is explicitly set out in the Agreement of Purchase and Sale. It still remains on buyers to account for utility hookup costs. These fees range widely, anywhere from $500 to $1,500 depending on the provider and area.
Developer incentives and where these projects are located can further impact these costs. Some of these costs can be mitigated as some developers rebate or pay directly various fees that then lowers the financial obligations. At the same time, condos located in desirable urban centers could have more cumulative costs than those found in the suburbs.
Understanding these factors helps buyers evaluate their financial commitments effectively. Closing costs typically range from $1,500 to $2,500, depending on legal fees and other elements. By working with trusted professionals, these expenses can be managed with clarity and confidence.
How to Prepare and Manage Costs
For a typical studio or 1-bedroom condo, you should plan on $20-30K in closing costs. If you’re considering 2-bedroom units or larger, those costs usually shoot up to anywhere from $30,000 to $40,000. Keeping yourself informed and organized can save you time and money.
First, do your homework on the known costs to implement your purchase. These costs include development charges, utility hook-up fees, and local/leverage levies – such as parks or community improvement levies. Development charges are not a fixed amount. In Toronto, they’ve been known to almost double overnight.
Make sure that these fees are not limited in your sales contract to prevent surprises from inflated fees! Utility connection fees, for instance, can be thousands to tens of thousands – as low as $500 or as high as $20,000 based on the utility services needed.
In addition to these costs, you need to pay attention to other costs such as monthly occupancy fees which must be paid to the developer prior to formal ownership. We recommend developing a comprehensive detailed budget as the next step.
Keep legal fees in mind when preparing costs. Don’t miss this step. These usually run from $1,500 to $2,500, with that figure including disbursements. Units sold for less than $350,000 will likely have HST bills of about 7.8% of the sale price.
We know these numbers might seem daunting, but with a sound financial plan in place, you’ll be able to tackle them head on. Engaging with a qualified real estate attorney is extremely important.
Pre-construction purchases have special complexities and it’s important to have a
lawyer who is skilled at handling these transactions to make sure you are 100% protected. They can help you understand the finer points of your agreement, flag risks or issues, and walk you through the closing process.
We have a unique passion and expertise for advocating and fighting for your interests. Our flat closing cost model means no surprises and transparency at each stage of the process. Lastly, the best way to avoid undue financial burden is to be proactive.
Know all costs involved and develop a reasonable budget. Partner with traditional and niche industry veterans to tackle with confidence and less stress your pre-construction closing.
Potential Risks and Hidden Fees
As always, beware of the myriad hidden costs that can change from development to development and market to market. The biggest fiscal red flag may be the deposit scheme. To secure them, buyers routinely put down 20% of the purchase price as non-refundable deposits.
This figure is usually divided over a few months with 5% paid up front and the rest of the 5% in 30, 90, and 120-day intervals. If not planned for from the beginning, this staggered payment schedule can put a real strain on finances. Development charges, which were once limited to a maximum of $5,000, now often exceed $20,000.
For some buyers, this can mean paying 5-10% of the purchase price solely in development charges, a considerable addition to the overall cost. Municipalities in Toronto and the GTA have doubled and tripled these add-on fees. It’s a reality more evident today than at any point in recent memory - that we must budget for this cost.
Another important factor to take into consideration is HST, which can be as high as 7.8% of the purchase price on properties less than $350,000. This tax, when paired with utility hook-up closing costs - averaging between $500-$2,000 - and $1,500-$2,500 in legal fees incurred during closing, these costs add up fast.
On average, closing costs for a one-bedroom unit or studio will cost about $8,000 to $10,000. By comparison, bigger, two-plus bedroom units can have expenses climbing up to $12,000 to $18,000. Such increasing fiscal burdens associated with pre-construction costs are embedded in those numbers.
In recent years, some fees have more than doubled, with some going as high as a 100% increase.
Financing Options and Cost Reduction
There are numerous options to reduce this cost and the headache that comes with it. Most experienced developers will have a more accommodating payment schedule, like four five percent payments over the course of the build-out. This staggered approach allows first-time buyers to capture the most savings.
It enables them to budget for the cost over time rather than face a one-time payment. First-time buyers in Ontario can receive a rebate of up to $4,000, greatly reducing their land transfer taxes. Buyers in Toronto have to contend with the municipal land transfer tax. Like the provincial tax, this one is an excise levy.
This means, for instance, that the first $55,000 a person earns is taxed at 0.5%, with the rate going up on subsequent income. Mortgage insurance is another major factor in costs to consider. The Canadian Mortgage and Housing Corporation (CMHC) requires that mortgages are insured when the home buyers provide a down payment of less than 20%.
These premiums, which generally range from 2.8% to 4% of the mortgage amount, are paid upfront, by the buyer. While this definitely contributes to the cost, it provides buyers flexibility to purchase a more expensive home without a larger down payment. Understanding these private mortgage insurance premiums and exploring mortgage options with lenders will help prospective buyers make the best financial choice for their situation.
Monthly condo or maintenance fees factor into borrowing for pre-construction condos. These charges are usually in the range of $0.50-$1.00 per square foot. They serve as an important guide when budgeting for the cost of ownership over the long haul. Potential buyers need to look closely at these costs and consider them as part of their overall financial plan.
We want to assure buyers that all rebates, programs, and financing options are not only accessible, but easy to navigate. While many of these options may seem daunting, taking the time to explore them can yield substantial cost savings and a much more seamless purchasing process.
By being informed and taking a proactive approach to the complex financial landscape, buyers can create the strongest financial strategy possible and safeguard their investment.
Contesting Closing Costs and Recourse
The best place to start is making sure that all of your communications and agreements about any charges are well-documented.
This may be applicable to include all emails, contracts, addendums and amendments she has received from the builder or developer. Maintaining detailed documentation can be a crucial source of evidence should disagreements occur, providing an organized overview of what was promised.
If things are still off, you can seek legal recourse. Buyers that feel they’ve been charged in bad faith need to speak with legal representation to determine their course of action. Courts have repeatedly ruled for plaintiffs in cases where home buyers suffered significant damages.
These damages usually total in the hundreds of thousands of dollars. If the bank appraises your unit at $700,000, you have a $200,000 gap. You need to come up with money to fill that hole to close the deal. If a builder sells a canceled unit of addresses $600,000 after it bought for $800,000, the buyer would potentially be able to sue.
They could potentially be liable for the $200,000 premium. Whether it’s a schoolyard or an urban space, these scenarios underscore the need to understand all legal obligations and risks.
An attorney’s duty is central to this process. We always stress the importance of carefully reading the purchase agreement before signing it. Terms such as occupancy fees and operating statements should not be new to buyers.
These fees can add up to $5,800 monthly, exceeding original estimates by thousands of dollars. Resources and buyer protections are crucial. Buyers need to learn about protections such as Ontario’s Tarion warranty, which can provide important coverage and peace of mind.
With the current market’s unpredictability, being prepared with a backup plan is just as important. Unplanned life events or changes in financial circumstances may derail what was once a good plan. Having an exit strategy can protect against those unforeseen conditions.
For buyers making a down payment of less than 20%, additional mortgage insurance requirements need to be considered when planning their finances.
To conclude, dealing with these myriad complexities really highlights the need for experienced legal representation. With over 25 years of expertise, our team ensures every detail is addressed, safeguarding your investment and simplifying the process.