Often, when you put an offer in on a property, you think about what you will need to pay for it on its face. It is important, however, to also keep all of your closing costs in mind. I will be expanding on closing costs in my post next week, but today I wanted to talk about one closing cost that is almost always forgotten: adjustments.
In most Ontario municipalities, taxes are paid in quarterly instalments. What this means for you when you buy is that, most likely, the vendors have overpaid their taxes relative to the amount of time they will have owned the home on the closing day. For example, if the total taxes for the year are $2,000.00, the vendors have paid the first three instalments totalling $1,500.00, and the property is being sold in August, then the vendors will have overpaid on taxes because there are more than three months remaining in the year. In that case, the vendors will be credited back with the overpayment and this will be added on to the balance due on closing. This is why the total amount that you owe to the vendors on your closing funds summary from your lawyer will almost always be more than the actual purchase price (minus your deposit). The same type of adjustment happens with items such as fuel oil or propane, common expenses for condominiums, and tenancies if the property is wholly or partially rented.
You should always budget for these possibilities to ensure that you avoid surprises when you approach your closing date.
