Closing Costs Explained for Buyers and Sellers
Closing costs are often underestimated, especially by first time buyers and sellers who are focused primarily on price. Understanding what costs typically arise at closing can help avoid surprises and allow for better planning.
This article outlines the most common closing costs buyers and sellers should expect and explains how they differ from deposits.
Closing costs versus deposits
A deposit is paid shortly after an offer is accepted and forms part of the purchase price. Closing costs are separate expenses paid at or before closing and are not credited toward the purchase price.
Deposits demonstrate commitment to the transaction. Closing costs cover legal, tax, and administrative expenses required to complete it.
Typical closing costs for buyers
Buyers should plan for costs beyond the purchase price. While exact amounts vary by property type, location, and individual circumstances, understanding typical ranges can help avoid surprises.
As a general guideline, buyers often plan for total closing costs of roughly 1.5–4% of the purchase price, though this can vary.
Common Buyer closing costs include:
• Land transfer tax, approximately 1–2% of the purchase price, depending on price and location
• Legal fees and disbursements, commonly in the range of $2,000–$3,000
• Title insurance, often around $500
• Home inspection costs, typically $500–$2,000, depending on the property
• Mortgage related fees, such as appraisals or lender charges, if applicable
• Adjustments for property taxes, utilities, condominium fees, or fuel tanks
• Mortgage interest adjustment, covering interest from the closing date to the first regular mortgage payment
• Moving costs, such as truck rental, professional movers, storage, or travel expenses
• Utility setup fees or deposits, which may apply when activating electricity, gas, water, or internet services
• PST (Provincial sales tax) applies to mortgage insurance premiums and is payable at closing
First time buyers may qualify for land transfer tax rebates and other first-time homebuyer incentives, which can reduce total costs depending on eligibility.
Common closing costs for sellers
Sellers also incur closing costs, which may include:
• Real estate commissions
• Legal fees and disbursements
• Mortgage discharge or prepayment penalties, if applicable
• Adjustments for property taxes or utilities
• Status certificate cost, approximately $100 typically paid by the seller for condominium units
• Capital gains tax, which may apply when selling an investment property or non-primary residence
• HST, which may apply in certain situations, such as new construction or commercial properties
• Fuel or tank adjustments, including filling oil or propane tanks to agreed levels at closing
These costs are usually deducted from the sale proceeds at closing.
Some sellers may also need to plan for capital gains tax, particularly when selling investment or non primary residences. This is not a closing cost paid on closing day, but it can affect net proceeds later. It’s important to speak with an accountant or tax professional early to understand how this may apply to your situation.
Statement of Adjustments
The Statement of Adjustments is prepared by the lawyers involved in the transaction and outlines how costs are apportioned between buyer and seller as of the closing date.
Adjustments often include property taxes, utilities, and, in the case of condominiums, common expenses. The goal is to ensure that each party pays their fair share for the period they own the property.
Additional considerations for investment properties
For investment properties, closing adjustments may also account for rental income, last month’s rent deposits, and prepaid expenses. These items can affect the final amount owed or credited at closing and should be reviewed carefully.
Planning ahead
Closing costs vary based on property type, location, and individual circumstances. Reviewing estimates early and confirming details with your lawyer and lender can help avoid last minute stress.
Final thoughts
Closing costs are a normal part of real estate transactions, but they require planning. Understanding what to expect and how costs are calculated allows buyers and sellers to approach closing with clarity rather than surprises.
Exact costs vary, and buyers and sellers should always confirm figures with their real estate agent, lawyer, and lender.
If you’re buying and want to understand how costs fit into the process, see our Buyers page.
If you’re selling and want clarity around proceeds and adjustments, visit our Sellers page.
