Closing Costs for Sellers

Understanding Your Net Proceeds

When you sell your home, the sale price is not the amount you walk away with. Several costs are deducted before you receive your net proceeds. Understanding these costs upfront helps you set realistic expectations and make informed decisions about your asking price and next steps.

Unlike buyers, sellers do not pay land transfer tax. However, sellers typically face larger total costs due to real estate commissions, which represent the biggest expense in most sales.

Real Estate Commission

Real estate commission is the largest closing cost for sellers. In Ontario, the total commission is negotiable but typically ranges from 4% to 5% of the sale price, plus HST. Commission structures are governed by regulations overseen by the Real Estate Council of Ontario (RECO). On a $900,000 sale at a 5% commission rate, that amounts to $45,000 plus $5,850 in HST, for a total of $50,850. The commission is split between the listing brokerage and the buyer's brokerage, with each agent's brokerage taking their share.

Some sellers negotiate a lower commission rate, particularly on higher-value properties. However, offering a competitive cooperating commission to the buyer's agent is important to ensure your property gets maximum exposure and agent attention.

Legal Fees and Disbursements

Sellers also need a real estate lawyer to handle the closing. Legal fees for selling are generally lower than for buying, typically ranging from $1,000 to $2,000 plus HST. Your lawyer will handle the discharge of your existing mortgage, transfer of title to the buyer, and distribution of funds. Disbursements such as registration fees, courier costs, and administrative charges typically add $200 to $500.

Mortgage Discharge and Penalties

If you have an existing mortgage, your lender will charge a discharge fee to remove the mortgage from title. This fee is typically $200 to $400. However, if you are breaking your mortgage before the term ends, you may face a prepayment penalty that can be far more significant.

For variable-rate mortgages, the penalty is usually three months of interest, which might range from $2,000 to $5,000 depending on your balance and rate. For fixed-rate mortgages, the penalty is the greater of three months of interest or the interest rate differential (IRD), which can reach $10,000 to $30,000 or more depending on how much rates have dropped since you locked in.

Staging and Preparation Costs

While not technically closing costs, preparation expenses reduce your net proceeds. Professional staging in the GTA typically costs $3,000 to $6,000 for a three-month staging period. Minor repairs and touch-ups might run $500 to $2,000. Professional cleaning costs $300 to $600. These investments usually pay for themselves through a higher sale price, but they do need to be factored into your overall costs.

Capital Gains Tax

If the property you are selling is your principal residence, the sale is exempt from capital gains tax under the Principal Residence Exemption. However, if the property is an investment property, rental property, or a second home, you will owe capital gains tax on the profit. Currently, 50% of the capital gain is added to your income for the year and taxed at your marginal rate. For gains exceeding $250,000, the inclusion rate increases to 66.7%. For the latest capital gains rules, visit the Canada Revenue Agency.

It is important to work with an accountant if you are selling a non-principal residence to understand your tax obligations and plan accordingly.

Condo-Specific Seller Costs

If you are selling a condominium, you may need to pay for a status certificate, which the buyer's lawyer will request. The cost is typically $100 to $150. You may also be responsible for a discharge of any condo liens and ensuring all common expense fees are current at closing.

Sample Seller Cost Breakdown

Here is a realistic example for selling a $900,000 home in the GTA with an existing mortgage balance of $400,000 and two years remaining on a fixed-rate term:

• Real estate commission (5% plus HST): approximately $50,850
• Legal fees and disbursements: approximately $1,800
• Mortgage discharge fee: approximately $300
• Mortgage prepayment penalty: approximately $8,000
• Staging: approximately $4,000
• Minor repairs and cleaning: approximately $1,500
• Total estimated costs: approximately $66,450
• Estimated net proceeds: approximately $433,550