Equity is the amount of money you will have after the sale of your home. To calculate equity, simply take the total sale price and subtract all debts, liens, and charges against the property, which must be paid as part of the sale transaction.
While this seems very straightforward, it is usually difficult to calculate your exact equity in advance because of the uncertainty of a variety of factors such as the amount of mortgage owing, the status of any mortgage owing, the status of any mortgage tax account, the delay at the Land Titles Office, and so on.
The fees that will be charged are dependent upon such factors as the complexity of the transaction, whether there is a rush to process the documents, the time of year which often affects delays, etc.
Real Estate Commission
The commission on the sale of a property is to be negotiated by the seller and the real estate brokerage.
If your home has been used as collateral for a personal loan, then the loan must be paid, as well as loans from utilities or government agencies must be paid, as they cannot be transferred to another property.
Water accounts must be paid to the date of possession, as any unpaid water accounts are added to the property tax bill. Outstanding accounts must be paid from the sale proceeds by our office.
Liens and Judgements
Although these are not common, any liens against your property resulting from a lawsuit or other legal proceeding must be paid out before the sale is complete.
These include the mortgage discharge fee payable to the Land Titles Office, title investigation charges, and other fees such as couriers, accounting fees, file fees, photocopies, faxes, file management, file storage, postage, and office supplies.
You are responsible for the property taxes for the months that you own your house. In all transactions, either the buyer or the seller pays the annual tax bill. The party who paid the taxes is then reimbursed by the other party by way of an adjustment to the sale price.
If you have paid or will pay the tax bill prior to the possession date, 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 the 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 your taxes as part of your mortgage payments, the tax portion of your payments will have been placed in a separate savings account. The credit or debit in this account will be applied against the balance owing on your mortgage.
Any money owing on a mortgage will reduce your equity. Don't forget to include any mortgage penalty and other charges. Unless your mortgage is at the end of the term or is an open mortgage, you may have to pay the penalty to the lender to have it discharged. The amount of the penalty is predetermined by the lender. Also, there will be a discharge fee to be paid to the lender. The mortgage payments always cover the previous time period. As a general rule, you must make mortgage payments that fall due until the title has been issued.
The question of interest often arises when there is a delay in processing mortgage documents at the Land Titles Office. During this delay, you will receive interest on the proceeds of the sale at the mortgage rate of interest. At the same time, you will pay interest on any mortgage on the property and any interim financing you may have arranged.