Real estate tips: When buying a new home check the builder's reputation and make sure the upgrades are worth it.
Some new homes are bought before they're built. So be sure you know exactly what the deal is.
Many people will buy their first home from a builder, whether it is a detached home, townhouse or condominium unit. Here are the five questions you need to ask to make sure you don’t make a mistake.
What is the builder’s reputation?
This may be the most important research you can do before buying from a builder. Check any prior home/subdivision/condominium project that they have built in the past. Look at the Tarion website under the Licensed Builder Directory, so that you can see how many homes they have built in the past 10 years, whether they have won any awards and the number of complaints, if any, made to Tarion against them.
Tarion is a private corporation which administers new home warranties in Ontario.
Better still, go visit any prior homes and talk to the neighbours. For example, ask if the builder was diligent in fixing every problem with the home that was identified by the buyer during their pre-delivery inspection.
Is the builder contract unfair to buyers?
In many ways the contract favours the builder. For example, the builder usually has the right to extend the closing date, change the layout or square footage of your home and also many of the finishings and there is little the buyer can do about it. This can cause real problems if the delay affects your child’s new school year or your employment plans. Again, remember to ask prior buyers if their home was delivered on time, and whether they received substantially what they were promised.
What extra charges will a buyer have to pay?
When you buy a new home or condominium, the price quoted to you in the sales office will be the base price of the home, inclusive of HST. If you order any upgrades, that is extra. In addition, there is now a separate schedule of additional charges that you also have to pay. Some of these are spelled out with an exact dollar figure, such as Tarion Enrollment fees, legal fees, grading deposits, hydro or water meter installations. Other items are more vague, which may relate to levies or development charges which are added by any governmental authority after the agreement is signed. I have seen some cases where these extra charges exceeded six per cent of the original sale price, and the buyers only found out about this a few days before closing. Make sure you get a cap on the total amount of these extra charges. My own rule of thumb is that the total should not exceed 1.5-2 per cent of the original purchase price.
What upgrades does a buyer need?
Builders in general make a lot of profit from upgrades which they offer to buyers for finishings in the home. Here is where you may want the assistance of a professional real estate agent, who will tell you in advance in which rooms these upgrades will make the most difference on any re-sale. An agent can also offer helpful advice about which lot or unit location and layout will have a higher re-sale value.
Can a buyer transfer the agreement before closing?
When you sign your builder agreement, the home may not be ready for 2-3 years down the road. Things change. Try to negotiate right away the right to transfer your contract to someone else before closing if your circumstances change. Some builders will not allow it, others permit it for a fee, while some will permit it one time only, for no fee.
Ask the right questions before you buy a home from a builder and you won’t be disappointed later.
Mark Weisleder is a Toronto real estate lawyer. Contact him at firstname.lastname@example.org