Everyone woke up this morning to a slightly different Alberta. That is, to ease the pain of a looming deficit, the government will be taxing Albertans a little more than what we’ve been used to. Health care levies and more taxes at the pump are coming into effect immediately. And if you’re buying a home this year, closing costs are going up too.
So how much more is it really?
Sadly, the media has had a field day with this, scaring homebuyers with talk of “dramatic increases” in fees for routine title registrations, these being to register title to the new owner and in most cases, to register a mortgage.
Currently, the new land title for that buyer costs $150 and the mortgage registration costs $140, for a total of $290. In the new budget, a land title would cost $675 and mortgage registration $555. The new total: $1,230.
Budget: Dramatic fee hikes coming to real estate market, Calgary Herald, March 26, 2015
Hmm… “Dramatic fee hikes” eh?
Let’s step back and look at the big picture in regards to real estate closing costs in Alberta.
Lenders (and proactive real estate agents) often ask homebuyers to sock away about 1-1.5% of purchase price to cover closing costs. If we assume an average sale price of $275,000 in Lethbridge, then the “average” homebuyer should theoretically budget at least $2750 for closing costs. Closing costs generally include a home inspection, legal fees, and other incidentals. If you’re really watching the pennies, you might not even eat up that 1% budget.
Now, let’s look at closing costs in the rest of the country. In all other provinces except Saskatchewan, purchasers have to pay land transfer taxes; this can equal to 1% or more of the purchase price. That’s on top of legal fees, home inspection, etc.
So, is an extra $900 out of pocket a big deal for Alberta homebuyers? In the grand scheme of things, I’m not sure it is. Perhaps we’ve just been getting such a GOOD deal for so long that we’re feeling some sticker shock at having to pay what some might consider “market rate.”
The headlines would have us believe that these extra registration fees are going to deter Albertans from buying a home at all. Yet homebuyers have always had to have at least some cash in hand prior to closing, whether it’s for the bank, a deposit for purchase, or to pay the moving company.
While no one is excited about paying an extra $900 for anything, the media has grossly oversimplified (surprise surprise) a small snag in a much broader, more complex market dynamic. In Lethbridge and elsewhere, we should be paying attention to the real economic trends, not a $900 fee. If prices go up or down even a few percentage points, that is going to impact real estate in a much more meaningful way. Fortunately or unfortunately, depending how you view the looming economic pain, $900 is a drop in the bucket.