Purchasing a new home is an exciting and enticing endeavour to many people in today's real estate market. However, it involves complexities and considerations that significantly differ from the purchase of a resale home. The following are 10 factors to consider before purchasing your new home from a builder in Ontario.
1.Ensure your builder is registered with Tarion Warranty Corporation
Tarion Warranty Corporation (“Tarion”) is tasked with administering the Ontario New Home Warranties Plan Act, which protects new home buyers and regulates new home builders. All builders in Ontario must be registered with Tarion. This means they have completed technical requirements associated with the Ontario Building Code and have met financial qualifications set by Tarion. If you use an unregistered builder, you are risking your entire investment.
The warranty that Tarion provides for newly built homes (and condos) in Ontario consists of 1-year, 2-year, and 7-year warranties. The warranty takes effect on the date of possession and covers bad workmanship, water penetration, major structural defects, delayed closing and protection for your deposit. Deposits on new freehold homes are protected by Tarion up to $40,000.
Purchasers are always encouraged to do their own due diligence on the builder via Tarion's website (www.tarion.ca).
2.Don't forget about the various costs and fees NOT included in the purchase price
The cost of purchasing a new home from a builder consists not only of the builder’s sticker purchase price and the cost of any upgrades you requested, but also of the extra fees and adjustments the builder will pass on to you at closing. These adjustments may total many thousands of dollars, catching unsuspecting new home buyers by surprise a few days before closing.
Some of these fees and adjustments can include the enrollment fee for Tarion, development and education levies, park and transit levies, tree planting costs, legal fees, land transfer taxes, and fees related to utility agreements and rental items. Although some of these items may have a specific amount disclosed, many will not simply because the builder has not incurred the expense yet. Your real estate lawyer may be able to negotiate with the builder for placing a cap on the total amount of some of these costs, or even for removing some of these adjustment fees from the agreement all together. Ask and you shall (maybe) receive.
3. Know if you qualify for the HST rebate on new homes - and the implications if you don't
The Ontario HST rebate for new homes is available to anyone in the province who purchases a new house or condo from a builder, or who hires a builder to construct a new house. The maximum rebate you could be eligible for is $30,000.
To be eligible, the new house must be used as the primary place of residence by the purchaser or their immediate family. If there is more than one purchaser and one of the purchasers does not qualify for the new housing rebates, none of them will be eligible.
The rebate is generally assigned to the builder vendor upon closing, which allows the builder to advertise a lower sticker price. For example, if the builder has listed a purchase price of $325K for a new home, the HST rebate of approximately $24K has already been discounted to arrive at the advertised purchase price of $325K.
Be aware that if you are found not to be eligible for the rebate, you will still be required to pay the amount of the rebate you would have received, if eligible, to the builder vendor upon closing. Following from the above example, if you were found not to be eligible for the HST rebate, you would be obligated to pay the $24K rebate to the builder, essentially raising the purchase price to $349K at closing.
4. Be wary of falling in love with the 'show home'
Show homes typically have expensive upgrades, features, and finishes installed that you will have to pay extra for if you want them in your new home. It is essential that you carefully review the schedule attached to your agreement that lists the actual features and finishes that will be included in your home. If it’s not listed in that schedule, it won’t be in your newly built home.
5. Be aware that the floor plan may change at the discretion of the builder
Your agreement of purchase and sale for a new home will typically allow the builder, at its sole discretion, to alter the floor plan. For example, many of these agreements allow the builder to construct a ‘mirror image’ of the original floor plan. It is also often the case that the floor plan drawings attached to your agreement do not include dimensions or even total square footage, or they are noted as approximate only. These ambiguities and possible changes may result in a new home that is quite different from the one shown to you in the sales brochures.
To avoid disappointment, it would be prudent to have your real estate lawyer attempt to renegotiate with the builder with respect to some of these potential variations to the floor plan. For example, your lawyer should request that any variation to the dimensions or square footage noted on the drawings be in accordance with Tarion’s Builder Bulletin 22, which provides that any variation to the floor plan must be within 2% of the total area measurement.
6.Be diligent during the pre-delivery inspection (PDI)
A PDI is the opportunity for you to visit your newly built home and inspect for any damages or deficiencies. Your builder will contact you to inform you of the date and time of the PDI, but it may be worthwhile to have your solicitor request that the PDI be at a mutually agreed upon date/time, for your convenience.
You will want to ensure you record all damages and deficiencies on the builder’s PDI Form during the inspection and before occupancy, otherwise it may be difficult to determine whether they were caused by you or the builder.
Hiring a home inspector for the PDI, despite not being mandatory, can provide new home buyers with peace of mind. Although they can attend the PDI in your absence, it would be prudent for you to also attend to ask any specific questions.
7. Consider whether you’re able to transfer the agreement to another purchaser
If you need to get out of the deal and cannot terminate the agreement without suffering severe financial penalties, you may be able to transfer your agreement to another interested purchaser before the closing date. Although some builders may allow such a transfer or assignment, many will not. If they do allow it, most will require that you obtain their consent, which may be arbitrarily withheld, and/or pay a fee. Your real estate lawyer may be able to renegotiate the terms of the agreement with the builder in an effort to loosen the tight restrictions and conditions placed on transfer and assignment.
8.Prepare your patience with respect to the closing date
It is not unusual for the closing date to be delayed or extended on a new home being built for you because of labour or material shortages, strikes, or the builder's inability to meet the original delivery deadlines. You should prepare yourself for some of these uncertainties and realize that a delay does not automatically void or cancel your agreement. Always check the Tarion addendum, included with your agreement, for these critical dates.
9. Be aware that if it's not written in the agreement, it’s not binding
All agreements of purchase and sale have what is known as an ‘entire agreement’ or ‘whole agreement’ clause. Essentially it provides that you and the builder vendor are only bound by what is written in that particular agreement - nothing more, nothing less. This clause is significant in that in the event of any conflict between the terms in your agreement and any sales materials (brochures, ads, etc.), sales pitches, or anything contained within the model/show home, the terms of the agreement will normally prevail. The message is clear - if it’s not in writing, it will be treated as if it didn’t happen or doesn’t exist.
10. Always have your agreement reviewed by a real estate lawyer
Agreements of purchase and sale for new homes, compared to resale homes, are extensively detailed, complex, and usually heavily skewed in favour of the builder vendor. Unlike when purchasing a new condominium, you do not have a 10-day 'cooling off period' after you sign the agreement to get out of the deal. Instead, you should insist on adding a clause that makes the deal conditional upon review by your solicitor.
A good real estate lawyer will not only read through the entire agreement and help you understand your obligations, risks, and liabilities, but he or she will also assist you in renegotiating some of the terms of the agreement, in your best interests. However, when it’s a ‘seller’s market’ (as it is today), builder vendors hold much of the bargaining power and may be unlikely to accept any amendments to the original agreement. In this circumstance, you will need to decide whether the terms in the agreement, as is, are acceptable to you.