Closing Costs Explained: A Guide for Buyers and Sellers

Closing costs are the one-time legal, administrative, and evaluation costs associated with the sale of a property. 

Most of these costs are paid before the property purchase is finalized.

Consequently, it is important you understand what you might want to pay for, what you can negotiate, and what you must include in your budget.

Common Closing Costs for Buyers

Even though you may think you’re financially prepared to buy, you may not know about all the expenses involved.

The following are either mandatory or common closing costs for buyers:

Buyer Closing Cost 1 – Deposit

When you make your Offer to Purchase, you must pay a deposit upfront.

Normally this is around 1% of the purchase price.

However, in hot real estate markets like Toronto or Vancouver, it could be as high as 5%.

The deposit is included in your down payment.

Buyer Closing Cost 2 – Home Inspection Fee

A home inspection reports on the condition of the home and could impact how much you want to pay.

Occasionally, the seller pays for a home inspection to accelerate the sale process, but they’re not required to do so.

The average cost is between $500 and $1,100.

Buyer Closing Cost 3 – Appraisal Fee

If you are obtaining a mortgage, your mortgage lender will order a professional property appraisal on your behalf to ensure the value of the property supports the loan amount.

If you are a cash buyer, you may want an appraisal to ensure you’re not overpaying.

Either way, you pay an appraisal fee.

The average cost is between $350 and $800.

Buyer Closing Cost 4 – Mortgage Default Insurance

If you are buying a home with a down payment of less than 20% of the purchase price, you must buy mortgage default insurance.

This insurance protects the lender against default as they consider mortgages with lower down payments to be riskier.

Mortgage default insurance is usually factored into your mortgage payments.

However, you can pay it in a lump sum payment.

You pay the 7% PST on this insurance too.

Calculations are based on the ratio between your down payment and your home’s purchase price and range between 2.8% and 4.0% of your mortgage amount.

Couple just paid closing costs

Buyer Closing Cost 5 – GST/HST on New Home

If you build or buy a new house or condo, you will pay GST or HST on the purchase price.

You may also need to pay for a new home warranty which protects you against defects in craftsmanship.

Some builders include the warranty in their asking price.

Otherwise, you can pay it upfront or add it to your mortgage.

It usually costs between $500 and $1,000.

Buyer Closing Cost 6 – Land Transfer Tax

All provinces, except Alberta and Saskatchewan, have a land transfer tax.

Alberta levies land and mortgage registration fees.

Saskatchewan levies a title transfer fee.

In Nova Scotia, every municipality establishes its own deed transfer tax.

Toronto and Montreal also levy municipal land transfer taxes.

We suggest you use a land transfer tax calculator for your specific area for an accurate estimate.

Buyer Closing Cost 7 – Legal Fees & Disbursements

Your lawyer will charge you a fee for their services.

Plus, you will pay for land title and tax searches, registering the title of your property, and administrative fees.

Fees usually average between $500 and $1,500, plus taxes.

Buyer Closing Cost 8 – Tax, Interest, & Other Adjustments

Homeowners pay property taxes annually.

However, most homeowners have a mortgage.

Anyone who bought a property with less than 20% down usually has to include taxes in their payment.

The tax portion of each payment goes into a tax account held by the lender.

They pay the taxes on the owner’s behalf.

When you buy, you must compensate the owner for the portion of the taxes they paid for the year after the closing date, because they are your responsibility.

As an example, annual property taxes might be paid June 30.

If the closing date of the sale is September 1, the lender calculates the portion of the previous owner’s tax payments that would apply for July and August.

Your lawyer includes this amount in your closing costs.

You may also pay an interest adjustment, because the lender releases mortgage funds on the closing date, but you don’t start making payments immediately.

The lender calculates the interest between the closing date and your first payment and your lawyer includes it in your closing costs.

They may also include any prepaid utility bills.

Buyer Closing Cost 9 – Title Insurance

Title insurance may not be mandated in your province or territory, but your lender may require it.

It protects the lender from a variety of losses that can occur if a property ownership dispute occurs.

This insurance can be purchased through your lawyer or a lender-recognized provider.

Costs range between $150 and $350.

Common Closing Costs for Sellers

While sellers pay fewer closing costs, they can amount to more money.

Experts estimate seller closing costs at between 8% to 10% of the sale price.

The following are either mandatory or common for sellers:

Seller Closing Cost 1 – Realtor Commission

The largest closing cost the seller pays is their realtor’s commission.

It varies between 3% and 7% of the sale price, but it is negotiable.

You will also pay GST of this fee.

Seller Closing Cost 2 – Legal Fees & Disbursements

When selling, your lawyer verifies you’re repaid for your portion of the taxes, interest, and utilities you’ve already paid past the closing date.

They will also deal with your mortgage company and track disbursements and adjustments.

Finally, they ensure your mortgage and title are discharged once funds have exchanged hands.

A simple sale could cost you between $500 and $1,500, plus disbursements.

Seller Closing Cost 3 – Mortgage Penalties

If you have a “closed” mortgage, you will pay a penalty to break your mortgage agreement.

A standard penalty is three months interest, but it can also be much higher if it is an Interest Rate Differential (IRD) penalty.

The lender may also charge a discharge fee which can range between $200 and $600.

Seller Closing Cost 4 – Buyer Concessions

Any costs you agree to pay for – inspections, tests, or repairs – will be taken off the amount you receive from the sale.

Who Pays Closing Costs

Generally, the buyer pays closing costs, except as mentioned above.

The seller may make concessions to close the sale, but they’re not obliged to do so.

The big banks recommend buyers set aside between 3.0% and 4.0% of the purchase price of your property for closing.

As an example, if you bought a home for $650,000, you should plan to pay between $19,500 and $26,000 out-of-pocket. 

Additional Costs to Consider

Some closing costs only apply to certain properties and may be negotiable within the Offer to Purchase.

Examples include a septic or well test.

You may also need to pay for an Estoppel certificate fee (except in Quebec) if you’re buying a condo or strata.

The cost is usually around $100.

If you are not a citizen or a resident of Canada, some areas charge a non-resident speculation tax.

This includes all British Columbia properties and residential property in the Greater Golden Horseshoe Region (GGH) of Ontario.

Finally, most lenders require proof of homeowner’s or condo insurance on closing day.

The cost depends on the policy limits, your premium, and your chosen coverages.

You can usually pay for your policy through monthly payments.

Frequently Asked Questions

  • How much are closing costs in Ontario?
  • Who pays closing costs at closing?
  • The buyer usually pays most closing costs. Some are negotiable such as a home inspection, water test, or septic tank test. However, the seller is not obligated to pay these.


Charlene Royston has written extensively for the private, public, and non-profit sectors for over ten years. Her experience working with a trust company led to a special interest in personal finance, including mortgages, investments, and retirement options. By simplifying the complex, she hopes to empower others to make more informed decisions.