Equity is the net worth which you have in your property. Think of equity as the amount of money which you will have in your pocket when the sale transaction is complete. In general, this will be the amount of the cheque we will provide to you when the transaction is complete.
To calculate equity, simply take the total sale price for the property and subtract all debts, liens and charges against the property which must be paid as part of the sale transaction. In most cases, it is difficult to calculate the exact amount of equity because of uncertainties as to the balance of mortgage owing, the status of any mortgage tax account, the amount of delay at land titles, and so on. The typical items to consider are:
Real Estate Commission
Real estate commissions typically range from 5%-7% of the selling price, and this must be paid by the seller's lawyer upon completion of the transaction.
(If you already read about legal fees under the heading "Purchase of Property", then the following is the same and you can skip over it)
Our fees are competitive and reflect our goal to provide excellent service that our clients will rave about at prices they are more than happy with.
A common complaint about many service providers, including lawyers, is that fees are "made up" along the way. We have built a reputation since 1981 of fair and fully disclosed pricing and this is reflected in our detailed written price lists which we provide to our clients.
Finally, we pride ourselves on a guarantee that we believe is unique among law firms. If, upon completion of a transaction, you have good reason to believe that you did not receive fair value for the services provided by us, you will be free to pay whatever fees you believe are fair.
These items are costs which the seller of a house must pay but which, for reasons of convenience, the lawyer pays on behalf of the seller at the appropriate time. These include the mortgage discharge fee payable to land titles, title investigation charges, couriers, and other miscellaneous charges all of which generally range from $85.00 - $140.00 depending on the specific transaction.
In all transactions, either the buyer or the seller (or his respective mortgage holder, where applicable) pays the annual tax bill to the City or Municipality. The paying party is then reimbursed by the other party by way of an adjustment to the sale price. The tax period for titled property is ALWAYS the calendar year, however the due date for payment is sometime during the year. In Winnipeg, taxes are due as of June 30, while in rural areas the due date is usually in autumn.
If you or your mortgage lender, where applicable, have paid or will pay the tax bill prior to possession date, then you will be reimbursed by the purchaser. The reimbursement is done by having the sale price "adjusted" upward. This will increase your equity. If the tax bill is not paid as of possession date, the purchaser will take over responsibility for it and you will credit the purchaser for your share by adjusting the sale price downward. This will decrease your equity.
If you have been paying taxes with your mortgage payments, there will be a "squaring up" to be done with your mortgage holder. This is because the mortgage holder has been setting aside the tax portion of your mortgage payments in a separate savings account and now it is time to close out that account. As with all bank accounts, there is always either some money in the account or else the account is overdrawn. This credit or debit, as the case may be, will be applied against the balance owing on your mortgage.
It goes without saying that the balance of money you owe under your mortgage will reduce your equity. Don't forget to include any mortgage penalty. Unless your mortgage is at the end of term, or is an "open" mortgage, you may have to pay a penalty to the lender to have it discharged, and the amount of the penalty may vary considerably. Do not assume the penalty is 3 month's interest just because that is the most common. Most mortgages contain a formula that allows for higher penalties if interest rates have dropped significantly.
If you took a cash back when you got your mortgage, and you have not held the mortgage for a sufficient period of time, don't forget that you may need to pay back some or most of the cash back.
Also, there will be a discharge fee to pay to the lender and the average amount is $300.00.
Don't forget that the mortgage payments always cover the previous time period. As a general rule, you must make mortgage payments that fall due on or before possession date and any interest accruing from your last payment up to the time we pay out your mortgage will be added to the amount we pay out.
Home Improvement Loans
If you have such a loan through a utility company or government agency, it will have to be paid out. Generally, it can not be transferred to another home.
If your home has been pledged as collateral for a personal loan, then the loan may have to be paid. Sometimes, a "collateral mortgage" or a "caveat" is placed against the home as additional security for a loan, and if so, it must be paid from the sale proceeds unless other arrangements are made with the lender.
Liens, Judgments, etc.
These are quite uncommon, but if you have been involved in a law suit or other legal proceeding such that a lien for money has been registered against your title, it will have to be discharged (ie: paid out unless you can convince the lien holder to discharge it without payment in full).
You may receive interest, for the duration of the land titles delay, on the sale proceeds or part of the sale proceeds. You will pay interest, for the duration of the land titles delay, on any mortgage on the property and on any interim financing you have arranged (usually required when buying another house).
To calculate interest to be paid, work out the interest payable under your mortgage and/or interim financing to a daily figure and then multiply by the approximate land titles delay at the time. The interest that you will earn is harder to estimate and will depend on the amount of any mortgage the purchaser is getting on the property.
GST and PST are payable on the real estate commission, legal fees and most disbursements.