5 Key Things to Ask When Buying a Home Pre-Construction

Most of the time, you are buying a new home or condo off of a piece of paper. Sometimes they have model suites, and other times you need to use your imagination. 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.

First and Foremost: 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. Drive through the sub divisions or walk through already built condos. Word of mouth is the best way to find out what buyers REALLY think!

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. I have heard of closings being extended over a year! I have also had a client have his builder substitute yellow siding for the exterior of the home when the buyer choose beige. This is NOT to scare you or steer you away from buying pre-construction. This is to pre-pare you that these things CAN happen and that you must be prepared and aware.

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, tree planting hydro or water meter installations, etc. 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. With regards to HST, depending on whether you are buying the property for personal or investments, you have pay HST in addition to the purchase price. The HST you pay can sometimes be redeemed. Speak to the builder, a realtor or your accountant to find out the details specially that apply to you.

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. Some times the builders insert clauses that if YOU do certain upgrades it can void your 1 year builder warranty. Make sure you are clear with a builder before you decide to go ahead and do any, that this will not void any warranties. Another alternative is to get the assistance of a 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. This is particularly important should you be buying the property for investment purposes.

Ask the right questions before you buy a home from a builder and you won’t be disappointed later. Better yet, use a realtor to help you buy pre-construction so that you know all the right questions are asked, answered to your satisfaction and your are in the know with all the protection you need. In many causes, the agent gets bonuses for their clients such as free upgrades or money off the purchase price. if you are considering a pre-construction property, pick up the phone to call me, Lorynne Lofsky and I can walk you through the entire process to save you time, money and make the purchase a smooth, positive one!

Courtesy of Lorynne Lofsky

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