The Cost of Selling a Home in Toronto
By Emily Southey | 11 minute read
There is a common misconception that selling a home is as easy as setting a price and putting up a “for sale” sign on your front lawn. Even in a market like Toronto’s, there is a lot that goes into selling a home. From cleaning and staging your home before putting it on the market to the REALTOR®’s commission, sales tax, and legal fees, there are several expenses that come with selling a home in Toronto. Sellers must be prepared to pay these costs and should factor them in when calculating the amount of money they’ll earn from their home sales.
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1. Pre-Listing Home Inspection
One cost that might come with selling a home is a pre-listing home inspection. While optional, some sellers find that conducting such an inspection makes their home more attractive to buyers. A pre-listing home inspection provides buyers with peace of mind, which could be especially important in a cooling market. Whatever your reasons for scheduling a pre-inspection, keep in mind that you will need to pay the fees associated with the inspection — namely, hiring a professional home inspector.
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2. Cleaning Fees
Before scheduling showings or an open house, you will want to make sure your home is as clean as can be. While you can clean your home yourself, many sellers choose to hire a professional to ensure it’s done right. Cleaning companies usually charge by the area or by the square footage. Shop around and compare rates in your neighbourhood. Cleaning services vary wildly in price, but you should expect to pay anywhere from $100 to $500 for a professional cleaning.
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3. Home-Staging Costs
If you want to sell your home, you need to make it attractive to potential buyers. One of the ways to do this is by staging it. Home staging may involve redecorating, rearranging furniture, and decluttering the space. Buyers tend to prefer modern, contemporary design esthetics with neutral colours. The amount of money you will need to spend on staging largely depends on the current look of your home. In some cases, your REALTOR® may recommend purchasing new furniture, while in others, a few plants or some new artwork might be all that’s needed. Keep in mind that staging can be expensive (up to several thousand dollars), especially when new furniture is involved. Not only will you need to pay these costs, but you may also need to pay for a temporary storage unit to store your existing furniture until the home is sold. Staging might seem like an unnecessary cost to selling a home, but the right staging has the power to attract buyers, which could result in a bidding war that drives up the price of the home. For this reason, staging your home is usually a worthwhile expense, and one of our top tips for selling a property.
“From cleaning and staging your home before putting it on the market to the REALTOR®’s commission, sales tax, and legal fees, there are several expenses that come with selling a home in Toronto.”
4. Home Repairs
To prepare your home for the market, some sellers choose to conduct minor repairs. Painting the walls, fixing leaky faucets, or patching up a few loose roof shingles can all help sell your home. However, the cost of these repairs is another out-of-pocket expense to budget for. Keep in mind that if you accept an offer contingent on a satisfactory home inspection, but the results of the inspection are not satisfactory, the buyer may negotiate for you to conduct further repairs before the deal is done. Examples of common repairs a buyer may request include mould removal, unstable patios or decks, roof repairs, heating, ventilation, and air-conditioning (HVAC) repairs, basement leaks, and roof repairs. Of course, it’s within your rights as the seller to decline an offer that requests these repairs or negotiate to have them excluded. However, we always recommended that sellers be prepared for the possible costs of home repairs, both minor and major, when selling their properties.
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5. Legal Fees
No matter whether you’re the buyer or the seller, you will need to hire a real estate lawyer, which means legal fees are another cost you must budget for. A real estate lawyer may provide you with a wide range of services during the selling process. These include a title search, Letter of Direction, Statement of Adjustments, and closing date fund transfer. First, your lawyer will ensure that you have closed any outstanding permits and agree to pay any outstanding items from the process of the home sale. Further, if any restrictions or easements are discovered in the buyer’s title search, your lawyer will help come up with a solution that satisfies both parties so the transaction can proceed. Your lawyer will confirm any mortgages or lines of credit on the property and give the buyer’s lawyer a Letter of Direction. This letter states that proceeds from the home sale will be used to pay off any debt or taxes owing. Part of this process involves your lawyer verifying the property tax information and providing it to the buyer’s lawyer. Further, the Statement of Adjustments is a list of expenses either owing or prepaid by the seller at the time of closing. Your lawyer will prepare this list, which may include items like property taxes, condominium fees, or parking permits. It is the lawyer’s job to verify the amount and terms of all items listed on the Statement of Adjustments. Lastly, on the closing date, your lawyer will receive the agreed-upon amount of money from the buyer’s lawyer. These funds will be sent electronically. Your lawyer will confirm the receipt of these funds and use them to pay any outstanding mortgages or debts. They will then draw up a report and hand over the keys to the buyer’s lawyer. Your lawyer will also calculate and deduct the closing costs, such as legal fees and REALTOR® commissions, and credit the remaining balance to the seller (the balance should be available for collection within 24 hours). Overall, the cost of hiring a lawyer varies, though real estate legal fees generally range between $500 and $1,000.
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6. Moving Costs
If you’re selling your home and moving into a new one, then another expense associated with your home sale is moving costs. Moving can be expensive, especially if you have many items, are moving at a popular time of year, or are moving far away, such as to another province or country. Even if you decide not to hire professional movers, you will likely still need to pay to rent a moving truck and for all necessary packaging materials. If you do choose to hire a professional moving company, this can add thousands of dollars to the cost of selling your home.
7. Realtor’s Commission
If you hired a REALTOR® to help you sell your home, you will need to pay the REALTOR® their commission once the home is sold. This is one of the most significant expenses that come with selling a home in Toronto. Once the property has sold, you must pay your REALTOR® commission. You will have agreed to a set commission rate when you first began working with your REALTOR®. Commission rates vary but typically fall between 3% and 7% of the purchase price. We recommend calculating how much you will owe in commission based on the listing price of your home to avoid any surprises at the end.
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8. Sales Tax (on Realtor’s Commission)
Remember that a REALTOR®’s commission is subject to sales tax in Canada. Therefore, beyond the commission you owe them, you will need to add sales tax according to the tax rate in your province. For homes in Ontario, the harmonized sales tax (HST) rate is 13%. Your real estate lawyer will ensure the commission paid includes HST.
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9. Mortgage Prepayment Penalties
If you end your mortgage before it matures, you should expect to be on the hook for various penalties and discharge fees. The amount you will owe depends on the type of mortgage you have (whether it’s fixed or variable). If you have a variable rate mortgage, the penalties will likely equal three months’ worth of mortgage payments, plus a discharge fee of a few hundred dollars. In contrast, if you have a fixed-rate mortgage, the penalties can be significantly higher. For this reason, we recommend contacting your mortgage lender in advance for more information on the exact penalties you will incur if you end your mortgage agreement.
10. Closing Adjustments
As mentioned above, your real estate lawyer will prepare a Statement of Adjustments before closing the deal. Depending on how you pay your property taxes and utility bills, your Statement of Adjustments may reveal several expenses still owing in relation to your home. If this is the case, you may have to pay the amount owed up until the closing day. Alternatively, if these expenses were prepaid, then you may be entitled to a refund depending on the closing date.
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11. Capital Gains Tax
The sale of your home may be subject to capital gains tax if it is not your primary residence. Capital gains tax is a type of tax you pay to the Canadian government when you make a profit from selling something of value, such as a property. However, principal homes are exempt from capital gains tax, so you will only need to pay this tax if the home you’re selling is a secondary property. In Canada, secondary properties include any buildings, land, and homes, whether used for business or residential purposes, so long as they are not designated as a principal residence. Common examples of homes subject to capital gains tax in Toronto include cottages (so long as you have a principal residence elsewhere in the province) and investment properties purchased to generate rental income. If you’re selling a secondary home, then calculating how much you will owe in capital gains tax is crucial to estimating your total profits from the sale. Note that sellers are only required to pay tax on 50% of the capital gains realized. This means that only half of the money you make from the home sale is taxed. To calculate the capital gains tax on a home sale, subtract the home’s adjusted base cost (the original purchase price of the home, including legal fees, taxes, commissions, and any improvements made to the property) from the selling price. Divide that number in half and the amount you’re left with is the amount subject to capital gains tax in Canada. From there, the capital gains taxes owed depend on many factors, such as your income bracket and the province you live in.
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For Sale by Owner
Sellers in Toronto always have the option of selling their homes privately (also known as for sale by owner or FSBO). FSBO is the practice of selling a property without the help of a REALTOR®. As you might expect, doing so comes with several advantages, as well as several challenges. However, if you’re looking to save money, then selling your home yourself might be the way to go. One of the main benefits of FSBO is that you do not have to pay a REALTOR® commission (or sales tax on that commission), allowing that extra money to stay in your pocket. Realtor’s commissions are typically the most significant expense that comes with selling a home, considering your REALTOR® typically receives between 3% and 7% of the purchase price (taxed at a rate of 13% in Ontario). If you sell your home for $500,000 and your REALTOR®’s commission is 5%, you will owe your REALTOR® $25,000 plus tax. That’s a significant amount of money you could have saved if you had sold your home privately. Other benefits that may come with selling your home on your own include greater control over the sale and increased power in negotiations. However, there is a significant drawback, which is not having an expert by your side guiding you through the process. Realtors take on a lot of the work that comes with selling a home, from staging and marketing it to scheduling showings and open houses and conducting invaluable market research. Selling a home can be incredibly time-consuming. If you choose to go the FSBO route, you must be prepared to devote the necessary time and attention to the task of selling a home requires.
Frequently Asked Questions
What are the average legal fees for selling a house in Ontario?
The average cost of legal fees for selling a house in Ontario is between $500 and $1,000. Though in some cases, they can be as high as $1,500.
How much is the closing cost for a house in Toronto?
The closing costs for a house in Toronto are typically between 1.5% and 4% of the purchase price. However, closing costs are the responsibility of the buyer, not the seller. That said, the seller is responsible for paying their REALTOR®’s commission, which usually falls between 3% and 7% of the purchase price. They must also pay sales tax on that commission.
What expenses can I expect when selling my home?
Sellers should budget for a wide variety of expenses when selling their homes. While less expensive than buying a new home, there are still many costs incurred when selling a property. Some of the most common costs that come with home sales include cleaning fees, home-staging costs, moving expenses, legal fees, REALTOR® commissions, sales tax, closing adjustments, mortgage prepayment penalties, home repairs, and pre-listing home inspection fees. The sale of your home may also be subject to capital gains tax if it is a secondary residence, such as a cottage or an investment property.
Emily Southey
Wahi Writer
