Real Estate Closing Costs

Real Estate Closing Costs: Definition & How It Works

Buying a home is a major financial undertaking, and it’s crucial to understand the different expenses associated with this type of transaction. In Ontario, the costs that come with buying real estate can accumulate quickly. These expenses can also vary across Canadian cities and provinces. When buying property, preparing for these costs is essential as they represent an additional financial burden in addition to your moving expenses.

What Does Real Estate Closing Costs Mean?

The term “closing costs” usually refers to expenses such as Land Transfer Tax, closing lawyer fees, and other expenses (in addition to your down payment) that must be paid when purchasing a property.

Real estate closing costs are the expenses over and above the purchase price of a property that buyers and sellers typically incur to complete a real estate transaction. These costs can vary widely based on the location of the property, the type of property being purchased, and the specifics of the transaction. For the buyer, closing costs may include loan origination fees, credit report charges, appraisals, title searches, title insurance, surveys, taxes, deed recording fees, and escrow deposits. Closing costs typically range from 1.5% to 4% of the purchase price of your new home, which you will need to pay when your house closes. If applicable, sellers might also incur costs, such as agent commissions and fees for attorney services. Both parties may negotiate who pays which closing costs as part of the sales agreement.

The amount and types of closing costs can significantly impact the total amount required to finalize the purchase or sale of property. Understanding these costs is crucial for buyers and sellers to budget appropriately for the transaction. The following are typical closing costs when buying a property:

Land Transfer Tax

Buying real estate in Ontario might incur various closing costs, among which the Land Transfer Tax is a significant expense. The purchaser pays this tax to the provincial government upon the transfer of property ownership, and its amount is calculated based on the property’s purchase price.

It is important to note that Ontario has two types of land transfer taxes, one for properties within Toronto and another for those outside of Toronto. The tax rates differ, and it’s crucial to consider these costs when planning your home purchase. For more information, please refer to our blog post on Land Transfer Tax here.

Another expense to consider is legal fees when buying real estate in Ontario. A real estate lawyer is required to complete certain tasks such as title searches, registration of the deed, and preparation of closing documents, and will charge a fee for their services. Legal fees can vary based on the complexity of the transaction and the lawyer’s hourly rate or flat rate. It’s essential to consider these fees when creating a budget for your home purchase.

Title Insurance

In addition to legal fees, title insurance is another closing cost when purchasing property in Ontario. This insurance policy provides protection against title defects and other issues that can impact the property’s ownership. The cost can differ depending on the purchase price of the property and the level of coverage required.

Home Inspection Fees

A home inspection is an important step when purchasing real estate in Ontario. It can uncover potential problems with the property that may not be visible during regular viewing. A home inspector will identify any issues with the property before the sale closes, allowing the buyer to negotiate repairs or a lower purchase price. The cost of a home inspection can vary depending on the size and condition of the property and should be factored into your budget when purchasing real estate in Ontario.

Appraisal Fees

While purchasing a property, lenders typically require an appraisal to determine the value of the subject property while getting a mortgage. The appraisal cost might differ depending on certain factors, such as the location and property size.

Property Tax Adjustments

Property tax adjustments shall be calculated on a pro-rata basis for both parties based on the closing date. If the seller has already paid property taxes in full for the year, then the buyer will have to reimburse them for the portion of the year they will have the property in possession.

Utility and Other Service Fees

The purchaser might have to pay the utility and other service fees, such as hydro, gas, water, and cable. Working with your real estate agent and lawyer is important to understand all the costs associated with your home purchase and to factor them into your budget.


In summary, purchasing real estate in Ontario comes with a variety of closing costs that can add up quickly. Understanding and planning for these costs in advance is important to avoid any surprises during the home-buying process. Working with a knowledgeable real estate agent and lawyer ensures that you are fully prepared for all the expenses associated with your home purchase. Contact us today if you have any questions on this matter!

The information provided above is of a general nature and should not be considered legal advice. Every transaction or circumstance is unique, and obtaining specific legal advice is necessary to address your particular requirements. Therefore, if you have any legal questions, it is recommended that you consult with a lawyer.

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