Most people know that when you purchase a new home or condominium from a builder there are extra costs, called adjustments, which can be charged on top of the purchase price. These can be extensive and add up well beyond what might be expected, unless you negotiated a limit to such adjustments when you initially purchased the property. Unfortunately, many of the properties coming to closing in Ontario were purchased during a very busy market and builders were not at that time willing to Cap or limit adjustments. It is also important to remember that when lenders decide how much to lend on a property purchase, they do not include the cost of these adjustments. They will come out of your pocket. So here is what you need to know about what you could be on the hook for in your upcoming closing:
1. HST and HST-related rebate adjustments.
Builders charge HST on new homes. This is typically included in the total purchase price of the property. However, the government has a rebate program where up to $24,000 of the HST is refunded to the buyer. Unfortunately, in most instances, the buyer assigns that rebate to the builder and certifies that the buyer qualifies for receipt of that rebate. However, to qualify, a buyer must be moving into the property to live in as his or her principal residence or for that of an immediate family member. If you have bought the property as an investment, or to rent it out, the builder will charge you an extra $24,000 on closing. You will have to come up with those funds to complete the transaction. You can get this money back if you rent the property out for a one year minimum under a written lease, but you would still have to apply for that later, but must pay it upfront to the builder on closing. In these tight times, this can add up to a big unexpected closing cost.
2. Levies, development charges and municipal connection fees.
Municipal development charges, education levies, parkland or other municipal levies and utility connection or meter installation fees are common adjustments. Builders will often pass these costs (which are based on municipal bylaws and actual fees incurred) to purchasers at closing unless the APS says otherwise. These charges can vary significantly by municipality and may be affected by timing (e.g., if development charge by-laws changed between agreement and closing). These can vary significantly and add up quickly as municipalities collect more and more for such levies, development charges and connection fees.
3. Warranty enrolment and other vendor/admin fees (e.g. Tarion, meter deposits, site works).
Tarion enrolment fees (and any changes to Tarion’s fee schedule) are charged by vendors and typically flowed to purchasers on closing as part of the adjustments. Builders may also charge for warranty administration, meter/security deposits, driveway paving, boulevard tree planting, fence installation, final grading, and other site-work items that must be completed before or after closing. Some of these are one-time fees; others are estimated at closing and adjusted later. Be careful: some fees (like Tarion enrolment) are tied to purchase price bands and Tarion has updated its enrolment schedule in recent years — these amounts can change and therefore should be anticipated in your budget and in the APS.
Practical Tips for Buyers:
- Read the APS carefully and have a lawyer review the agreement to drill down as much as possible on your adjustments/closing costs. If you have not signed your agreement yet, cap or negotiate suspect fees.
- Ask for itemization early if possible: Request an itemized estimate of likely adjustments well before closing (Tarion fees, development charges, utility connections, HST position/rebate assumptions, meter deposits, landscaping/site works). Don’t wait until your closing statement arrives 7–10 days before closing.
- Watch for HST rebate charge backs if you or an immediate family member will not be living in the property.
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