Buying New Home

What should you know when buying from a builder?

Buying a brand new home is a big decision and a significant investment. Buying from a builder provides you with the flexibility to define the look and style of your home without being as involved as you would be if you had decided to build your own home. However, you will still be required to make numerous decisions including, but not limited to, picking your property lot, choosing upgrade options, and who will be your home builder.

Generally, the process of buying a brand new home occurs over a period of time and in several stages. Initially, you should take some time deciding what your priorities are, what you would like to have, get pre-approved for a mortgage to determine your price range and then explore what is available. Check advertisements online or in your local paper to get a sense of what builders are offering. You may also consider attending a home show to see the latest in features and meet local builders.

When visiting builder's model homes, sale centers and offices, you should take notes on what you like and dislike. This will enable you to make an easier comparison when you decide upon a home. Don't be afraid to ask questions of the builder or salesperson and make sure you take a thorough look at the model homes. Keep in mind that often the builder's model home is only one of several designs offered by the builder. Information on other models should be made available to you at the builder's sales office or website. Compare the different floor plans of the homes and how they would best suit you and your family's needs.

It would also be prudent of you to do some background research on the home builders. For example, find out how long the builder has been in business and whether they are a member of a local home builders' association. Also, look to see what they have built in the past and, once the home is built, what the warranty on your home covers and if they provide any after-sales service. Other considerations include what the builder recommends for a deposit and if you are required to make payments to the builder throughout the construction period.

Once you have found what home you wish to have built, you can request that the builder draft a sales agreement. Before signing the document, make sure that you have your lawyer review it to ensure that your rights are protected and your needs fulfilled. After signing the document, you will be working closely together with the builder or the builder's representative to ensure that your home is constructed in a manner satisfactory to you. For example, you may be asked by your builder where you would prefer certain electrical, telephone and cable outlets located as well as certain colour schemes throughout your home.

Prior to its completion, you will be asked to join the builder on a walk through of the home to check if the work has been done according to plan and what if any work is still outstanding. You should include these outstanding tasks on a certificate of completion that your builder will ask you to sign at the conclusion of the walk through. The outstanding work should be done before you move in, or soon afterwards.

On the closing date of your home, in exchange for the remaining money owed to the builder, the property will be transferred to you from the builder and you will get the keys and any manufacturers' warranties on components and products used. The transfer of ownership and keys is completed through lawyers who register the necessary documents with the appropriate authorities.

In the time leading up to your first year in your home, your home builder will come back to touch up any small imperfections that may have emerged due to the normal process of the house settling and materials drying out.

Pre-Delivery Inspection

Prior to closing, you and your homebuilder must get together for a Pre-Delivery Inspection ("PDI"). The reason for this inspection is to create a list of any items that are incomplete, damaged, missing, inaccessible, not operating properly or in some way deficient. During this inspection, the builder is required to explain to you how the various systems in your home operate and are to be maintained as well as provide you with a Homeowner Information Package. This package will contain important information regarding the statutory warranty coverage on your new home.

At the PDI, you will be asked by the builder to sign a Certificate of Completion and Possession ("CCP"). It will establish the date of possession of your home or condominium. The date of possession is considered to be the start date for all statutory warranty coverage in your home.

New Home Warranty Program

Every new home in Ontario comes with warranty coverage provided by the builder and guaranteed by TARION Warranty Corporation. For those purchasers of new homes and condominium units who took possession of their home between September 1, 2004 and July 1, 2006, the maximum coverage for warranty protection available to them is $150,000. After July 1, 2006, the maximum coverage was increased to $300,000. This coverage begins on the purchaser’s date of possession and remains in effect even if the house is sold to another party before the warranty expires. So long as the purchaser formally reports the home’s deficiencies before the end of the warranty’s limitation period, the warranty will be honoured by TARION.

There are varying warranty periods depending upon the deficiencies involved. The Ontario New Home Warranties Plan Actoutlines the warranty protection that new home and condominium builders must provide as well as those items excluded from warranty protection. Examples of items specifically excluded from warranty coverage include defects in materials, design and work supplied by the purchaser, normal wear and tear and damage resulting from improper maintenance.

Deposit Insurance

A builder will always request that you make a deposit on your new home and many will require partial payments throughout the construction period.

In some cases, the deposit is staggered. For example, 10% of the purchase price is required with acceptance of an offer and a further 30% paid 90 days after the offer is accepted, etc. The total deposits can add up quickly and may exceed the amount insured by the TARION New Home Warranty Program. The TARION Program will protect your deposit on a new freehold home to a maximum of $40,000 per home. Consequently, with the assistance of your lawyer, you should amend the offering agreement to ensure that any deposit monies in excess of $40,000 are to be payable to the builder's lawyer, in trust, and be released only upon the final closing of the real estate transaction.