Investing in a pre-construction property in Ontario can be an exciting opportunity. Whether it's a sleek new condo in Toronto or a family home in a burgeoning suburb, buying a property before it's built allows you to secure a place at today's prices while benefiting from future appreciation. However, one aspect that often surprises buyers is the presence of unexpected fees that can arise during the process. Understanding these fees is crucial for budgeting and avoiding unpleasant surprises when it’s time to close the deal.
1. Development Charges and Levies
What They Are: Development charges and levies are fees imposed by municipalities to cover the cost of infrastructure improvements necessitated by new developments. These can include things like road expansions, schools, parks, and other community amenities.
What to Expect: In a pre-construction purchase, these fees are often passed on to the buyer. The cost can vary widely depending on the location and the scope of the development, but it’s not uncommon for these fees to range from a few thousand dollars to over $20,000. Some developers offer caps on these charges, but it's crucial to ensure this is outlined in your agreement.
2. Tarion Warranty Enrollment Fee
What It Is: The Tarion Warranty Program provides protection for new homebuyers in Ontario, covering issues like defects in workmanship, materials, and structural problems for specific periods after the home is built.
What to Expect: The cost of enrolling in the Tarion Warranty Program is typically the buyer’s responsibility. This fee is based on the purchase price of the property and can range from around $500 to over $1,500. It's usually included in your closing costs, so make sure to budget for it.
3. Assignment Fees
What They Are: An assignment sale occurs when a buyer sells their interest in a pre-construction property before the project is completed. This can happen if the original buyer decides not to close on the property and instead sells it to another buyer.
What to Expect: If you choose to assign your contract to another buyer, you may be required to pay an assignment fee to the developer. This fee can range from a few thousand dollars to 1-2% of the purchase price. Additionally, not all developers allow assignments, so it’s important to confirm this in your agreement.
4. Occupancy Fees (Phantom Rent)
What They Are: In Ontario, especially in condo developments, there’s a period known as "interim occupancy" where you may move into your unit before the building is fully completed and before you officially take ownership. During this period, you’re required to pay occupancy fees, often referred to as “phantom rent.”
What to Expect: Occupancy fees can include an estimate of your mortgage interest, condo fees, and property taxes. It's important to note that these fees do not go towards your mortgage principal and are essentially a form of rent until you officially close on the property. This period can last several months, depending on the development, so it’s essential to plan for this additional cost.
5. HST on New Homes
What It Is: The Harmonized Sales Tax (HST) applies to the purchase of new homes in Ontario. While the purchase price of your home may include the HST, there are circumstances where you could be responsible for paying additional HST.
What to Expect: If you plan to live in the property as your primary residence, you may qualify for the HST rebate, which can significantly reduce your tax liability. However, if you’re buying the property as an investment or to rent it out, you may be required to pay the full HST amount. It’s important to clarify your situation with your lawyer or accountant to understand how HST will affect your purchase.
6. Closing Adjustments
What They Are: Closing adjustments are fees that can include costs like property taxes, utility connections, and other services that the developer has pre-paid on your behalf.
What to Expect: These costs are typically settled on the closing date, and they can add several thousand dollars to your closing costs. It's essential to get a clear estimate from your lawyer or developer to avoid any last-minute surprises.
7. Legal Fees
What They Are: Legal fees are the costs associated with hiring a lawyer to handle the paperwork, conduct title searches, and ensure that the transaction is completed correctly.
What to Expect: In a pre-construction purchase, legal fees are a necessary expense and can range from $1,500 to $3,000 or more, depending on the complexity of the transaction. Your lawyer will also help you navigate and understand the various fees and adjustments associated with your purchase.
Final Thoughts
Buying a pre-construction property in Ontario can be a rewarding investment, but it’s important to be aware of the potential unexpected fees that can arise. By understanding these costs and budgeting for them accordingly, you can enter the process with confidence and avoid any financial surprises. Always work closely with a knowledgeable real estate agent and a qualified lawyer to ensure that all fees are transparent and that your interests are protected throughout the process.
