Darcy Keith
Updated: March 29 at 11:45 PM CDT
Print Article E-mail Article PRICE TAGS can be deceiving. They are supposed to show how much cash or credit you need to cough up for a purchase. Yet, what you ultimately pay out can be considerably more, once taxes, extra charges and hidden fees are all exposed. The more expensive the product or service, the more likely there'll be some surprises in store.
Homebuyers know this only too well. There are a myriad of extra costs that lurk in the shadows until it's time to take possession. Often the end result is racking up thousands of dollars of debt that can put a big dent in someone's finances.
With the housing market in Manitoba expected to remain firm this year, a lot of homes and condos will be changing hands, especially during the busy spring season. If you arrive at the bidding table armed with a little knowledge of what these extra costs will add up to, you'll be ahead of the game.
Experts suggest the hidden or extra costs on a home worth up to $300,000 are likely to range between $2,000 and $5,000. But it could be more -- much more, in a few cases. Just ask Steve, a Winnipeg resident who for this article requested that his last name not be used.
Three years ago, Steve bought a used home in River Heights that turned out to have a leaky foundation. Some $7,500 in work was needed right away, though the final bill ultimately came to double that.
The previous homeowners "had made a conscious effort to live with the leak," says Steve. "When we first went through the house with the real estate agents we took digital photos of the layout of the house. We didn't pay much attention, but when we looked back at the photos you could see signs the effort was there to alleviate any of the water damage to their possessions.
"They had bricks on the floor, benches or cabinets against the wall where it was leaking.... One area of the house they actually patched over a crack in the foundation."
Steve and his wife's visions for new doors, windows, floors and appliances were quickly dashed. "With the money it cost, it basically tapped us dry."
Steve's experience doesn't come as a big surprise to Ron Tardiff, a broker and owner of Trinkl Realty Ltd. in Winnipeg. Tardiff notes that even if a professional engineer is hired to examine a house before a purchase, there are no guarantees problems will be caught.
"No one has X-ray vision," says Tardiff. "I don't think it's any different than buying a used car. You can't protect yourself from every possible problem," he says.
Tardiff says the hot real estate market in Manitoba, often marked by aggressive bidding wars, means there's often a rush to purchase. "I find it a little scary that homebuyers out there are going ahead and buying homes without conditions and proper due diligence," he says.
While not foolproof, getting a home inspection done can identify potential problems in a lot of cases and save a pile of cash on future repairs.
Ted Rechtshaffen, a Certified Financial Planner and CEO of TriDelta Financial Partners in Toronto, says the inspection fee, itself a potential hidden charge when buying a home, can cost $250 to $500.
Rechtshaffen says sometimes the real estate agent, or even the selling party, will cover the cost of a home inspection. Be prepared to negotiate. If you're in a rush, a home inspection can often be done quickly before a deadline for bids.
Here are some of the other major hidden costs when buying a home, and some tips on how to keep them as low as possible:
Legal fees: These could wind up costing you between $1,500 and $2,000, says Rechtshaffen. He suggests one way to keep these expenses down is to deal with a smaller law firm instead of paying for a bigger name. A lawyer who specializes in real estate issues would be ideal.
Appraisal fee: This usually carries a tab of around $250, according to Rechtshaffen, but some mortgage lenders might be willing to foot the bill. It ensures purchasers are paying a reasonable market price.
Land transfer tax: If you live in Manitoba, there's no getting around it. Land transfer taxes kick in above the first $30,000 paid on a home, and there is a $69 registration fee. They start at 0.5 per cent, and incrementally rise in four steps, topping out at two per cent on any portion of a home's value above $200,000. So, a $300,000 house would be subject to a land transfer tax of $3,650.
Mortgage default insurance: You need to pay it if your down payment on a home is less than 20 per cent of its full value. The insurance premiums range from one per cent to 3.10 per cent of your mortgage loan. To lower your expenditures, you can opt to pay this in one lump sum at the time of purchase, rather than adding it to your mortgage and having to pay a good deal of interest on the premium. Usually a better option is to meet or exceed the 20 per cent requirement. "You cannot negotiate what these insurance costs are going to be, but you can say maybe I can scramble around and find enough money to avoid that cost entirely," says Rechtshaffen. Consider borrowing money from family or applying for an unsecured line of credit, he suggests.
GST: This applies to new homes and condos only, and thanks to the Tories cutting the GST to five per cent, this is one of the few expenses actually coming down. Check to see if the builder will pay for it. Rebates are available on homes priced under $450,000.
Property tax and utility adjustments: Sometimes previous owners have prepaid their property taxes or utilities and you'll need to reimburse them for the period when you'll be living in the home.
House insurance: This could cost as much as $1,000 to $2,000 annually, says Rechtshaffen. Do some comparison shopping to see who is offering the best rate.
Surveyors certificate: This is often handed down from owner to owner, but if it is lost, or changes are made to a lot such as adding a garage, a new one may be worth getting. It'll provide peace of mind knowing that everything on your lot is actually yours. Tardiff estimates the bill for this at $250 to $300.
Utility hook-ups: Many utilities will charge an installation fee. For services where competition exists, such as for cable television or telephone, you can ask if the fee can be waived in return for your business.
Fire retrofit: Some insurers may require rewiring of electrical lines to meet today's standards, which could cost $5,000 to $15,000, says Rechtshaffen. A home inspection should determine if this is a problem. But beware: in a strong housing market the buyer of the home is often forced to cover the costs, rather than the seller, he says.
ddkeith@mts.net
Furniture with that?
A warning from Rechtshaffen for potential homebuyers: Have at least $10,000 in cash on hand to spend on your house in the fi rst year, especially if you're upgrading to larger quarters. That may mean buying a home with a lower price tag to ensure it's something you can really afford. Remember, living in a new home, which may include buying new furniture, appliances and decorations, can involve many expenses you never budgeted for.
Note that real estate agents and mortgage brokers have vested interests and the bigger the purchase you make, the more commission they
are entitled to. "You have to always remember that if someone says you can afford a $300,000 mortgage, that doesn't necessarily mean you
should take a $300,000 mortgage," Rechtshaffen says. "A lot of people bite off more than they can chew. They get a nice house but they are basically in poverty."
Planning to buy According to an RBC Royal Bank survey conducted earlier this year, nine per cent of Manitoba and Saskatchewan residents are "very likely" to buy a home in the near future, while 12 per cent said they are "somewhat likely." Among those looking to make a purchase within the next two years, 79 per cent said they will likely purchase a resale home, and 57 per cent said they plan on buying a larger home than their current residence. |
