How much are closing costs when you buy a cottage?

If you’re looking to buy or sell a cabin or cottage, you may be wondering what exactly you can expect in terms of closing costs. While the standard closing process is similar to that for other property types, there are also cabin-specific closing costs that both buyers and sellers should be prepared to incur—things such as taxes, insurance, leasing, and licensing, along with anything else that comes out in the due diligence process.

Legal fees

Each party will hire legal representation for the property transfer and will incur fees for their lawyer’s time. The seller will also pay for clearing title, discharging liens, any encumbrances, prepayment of any mortgage penalties, and paying real estate commissions and any tax that might apply to the transaction (which is mainly on real estate fees).

For buyers, lawyers are there to act as their stakeholders and ensure the title is clean, the documents needed are complete, and the land title and mortgage (if financing is required) are registered. If the bank requires an appraisal, survey, title insurance, or other items, these would also be additional costs.

Insurance

The biggest expenses for buyers today are insurance and applicable taxes. “Sometimes, buyers go into these transactions assuming that insurance is a no-brainer,” says Jason Zroback of LandQuest Realty in New Westminster, B.C. But, it should be part of the due diligence process. These days, insurance can be very tough to obtain and quite costly, much more so than in the past and more than people anticipate, says Zroback. This is especially true for secondary residences located in unserviced fire districts, which is the case for many cabins or cottages, especially if your property is remote, water-access, off-grid, and tougher to get to. This can have an enormous impact on your insurance premiums.

What taxes can you expect to pay when buying a property?

Land transfer taxes vary from province to province, and in some places, such as Toronto, an additional municipal land transfer tax is levied on top of the provincial land transfer tax. In B.C., property transfer taxes are calculated on a sliding scale as a percentage of a property’s purchase price. So, if you’re looking at a cabin priced at, say, $200,000 or so, the tax will be nominal, but properties in the millions of dollars are subject to much higher amounts. However, you are not subject to land transfer tax in Alberta or Saskatchewan.

Depending on where you are purchasing your cottage in Canada, you may or may not need to pay the federal General Sales Tax or Provincial Sales Tax, or a combination of the two. It’s important to find out how much it is before you close. Like other transaction items, who pays the tax is always negotiable between the buyer and seller, and, depending on the type of property, say pre-construction versus a resale property, this may or may not be the responsibility of the seller to pay.

Don’t forget about the property tax. In Ontario, if the seller has already pre-paid the property taxes, then the property tax will be adjusted and prorated. The buyer then has to pay back the prorated property tax.

Leases and licenses

Different tenures may be part of your cottage or cabin closing costs. Sometimes, there will be a lease or license for remote, rural recreational properties, which you don’t have for other property types. These can include, for example, a foreshore lease, a water license (i.e. if water for your cabin comes out of a creek), a land lease, or a grazing lease on a farm or ranch. The cost typically includes a lawyer’s time to do the assignment and annual lease dues, both of which should be fairly nominal.

Due diligence

When it comes to who pays for what, some fees are very straightforward. For example, each party will pay for their own lawyer’s time, sellers typically pay for all real estate commissions, and buyers typically pay for appraisals. But, if and when market conditions change and problems arise, the market also dictates how deals are done and fees are charged.

For example, say it’s a seller’s market. Each party gets advice and it may be determined that if the seller wants out of a deal at any point, it’s allowed. In a hot market, the buyer will likely have to concede or back out of the deal themselves, yet be responsible for any difference in property value that the seller lost out on while the property was tied up with the buyer. Similar circumstances can be true in the reverse situation, where a seller must concede to a buyer’s requests in a buyer’s market.

However, anything is negotiable. While both parties can get their backs up, most people are reasonable. If, say, a GST liability wasn’t disclosed, typically the party that should have known will take responsibility.

The due diligence process before closing is very important, and there’s one thing you can do to help you navigate the pitfalls of the closing process: having a good realtor you can trust.

This story has been updated with additional information.

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