Looking For a Lawyer - First Time Homeowner Series

The first time I received a quote for real estate-related legal work, I almost passed out.

Down payments are one expense that most people are prepared for since we hear about them so often, but legal and government fees are a whole different league. I mentioned in a previous post that I didn’t buy my property through an agent, and at no point was it clearer how much I would have benefited from using an agent than when I started the legal aspect of the sale, because it would’ve helped significantly to have someone running through exact figures from the beginning to prepare me for this stage. 

My mortgage specialist ran through some of the costs (see more details in my Mortgage Post) with me in our meetings, but I never felt more broke than when I saw the first few quotes I received. The bank will give you a list of lawyers to choose from, so if you find yourself overwhelmed by prices at one law firm, there are a few other options to compare prices.  In the end I was lucky enough to be stuck between choosing two great lawyers at two very close, great prices, but in the end I decided to go ahead with one of my old schoolmates from university. Having a good relationship with your lawyer is important because you will need to communicate often and they should have your best interest in mind throughout the transaction (and if you’re like me, you may end up asking your lawyers a million questions to understand the legal jargon in the contracts before you sign).

So to reel the topic back in to what you really came here for, I’ll have to break down exactly why the “legal fees” are so expensive. First of all, you should understand what lawyers actually do in the process. Your lawyers and the seller’s lawyers will arrange the conditions of the sale (the split of VAT between buyer and seller, amount of time to be taken for the sale, etc.) and prepare the sales agreement. The sales agreement will probably be the last document you need to submit in your application to the bank or lending institution, so you should submit it as soon as possible after signing. It may take around a month or so for the loan to be approved or rejected.

The reality is that the actual legal work itself is not really that expensive at all. However, since your lawyers will also be the ones handling the processing and payment of your taxes etc., these fees are normally included in the total of the legal quote you’ll be given. This is the general range of fees you’ll be looking at:

VAT on conveyance of the property varies based on the property price:

1. 2.5% Value Added Tax (VAT) applicable on all property transactions valued at $100,000 or less.

2. 4% Value Added Tax (VAT) applicable on all property transactions valued at more than $100,000 but less than $300,000.

3. 6% Value Added Tax (VAT) applicable on all property transactions valued at more than $300,000 but less than $500,000.

4. 8% Value Added Tax (VAT) applicable on all property transactions valued at more than $500,000 but less than $700,000.

5. 9% Value Added Tax (VAT) applicable on all property transactions valued at more than $700,000 but less than $1,000,000.

6. 10% Value Added Tax (VAT) applicable on all property transactions valued at more than $1,000,000.

   * Note: in many cases, but not all, this is split half and half between the buyer and seller. 

Stamp Duty (1% of the loan amount)

Legal fees and disbursements (these tend to be around 2.5% of the property price, but can vary based on each lawyer’s own prices).

Real property tax also varies based on market value: 

1. $0 - $300,000 = Exempt

2. $300,001 - $500,000 = 0.625%

3. Over $500,000 = 1%

   
   

In the case of an average first time homeowner, you will likely be exempt from real property tax (since most people would qualify for loans under $250,000) and may also receive a First Time Homeowner Exemption on your VAT on conveyance. There are a few instances where the First Time Homeowner Exemption would not apply, though:

• On multifamily properties, you would only be exempt from VAT for the portion of the property which you live in. For example, if you buy a duplex with the intention of living in one unit, you would still have to pay half of your portion of the VAT on conveyance in the sale. 

• For multifamily properties consisting of three or more units (such as a triplex), no VAT exemption is applied. 

• VAT exemptions do not apply for vacant lots, even if you plan to build your first home on it. 

From the price breakdown, you can probably see why I was so shocked when seeing my first legal quote. I knew that First Time Homeowners usually have an exemption on their taxes, so I wasn’t prepared to pay this, although obviously as someone buying a vacant lot, I still ended up having to. I also got my lot at a great price so we didn’t split the VAT on conveyance between buyer and seller like most people do. In the end I know that I bought a property that was perfect for my current stage of life and I’ve already increased the value significantly since purchasing it; it just may have saved me a lot of headache to have had those things spelled out for me from the day I began my buying journey.

My fees actually ended up costing more than my down payment, which was 10% of the property price. I say this to try to give people a realistic idea of how expensive purchasing property can be and how important it is to be prepared and have great support behind you when you embark into it. Finding an agent to represent you as a buyer is the safest way to take your first step into the buying process.