What You Need to Know about Builder Deals
So you’ve looked around and finally found your “dream home”, a newly built home from a builder. You’re at the sales office and you want to put in an offer to purchase, but the Agreement of Purchase and Sale is 20-30 pages long! What do you do?
Before you sign the agreement, you should be sure you fully understand its contents. At this stage, you have two options:
- Sign the agreement and have it be conditional upon your lawyer’s review; or
- Don’t sign yet, but ask for a draft copy of the agreement for you to review with your lawyer before submitting the offer.
Either way, it is definitely a good idea to review the agreement, as it contains a lot of information regarding how the purchase transaction will unfold and what your rights and obligations are for closing. The following are some provisions you should be aware of.
Delay of Closing Date
One thing many agreements state is that the builder can postpone the closing date, if needed, without your consent provided that proper written notice is given. This right to delay is provided for in the legislation (i.e. Ontario New Home Warranties Plan Act and Regulations). The builder can delay your closing twice by up to 120 days each time, if the builder provides you with notice in writing at least 90 days prior to the first tentative and second tentative closing dates in the purchase agreement. Alternatively, if your agreement provides for a firm closing date, the builder’s right to delay the closing is subject to the payment of delayed closing compensation.
A delay in closing can be troublesome for various reasons:
- Uncertainty– it can be quite frustrating to not know, with certainty, when your purchase will close.
- Mortgage Rate– if you have arranged a mortgage at a particular interest rate, that rate is often guaranteed for only a set period of time. If your closing extends beyond that time period, you may risk losing the interest rate or you may have to renegotiate with your lender.
- Sale of Home– if you have sold your own home, you could find yourself having to move out (on the sale of your home) before your new home is ready to move into. You would then have to find somewhere else to live in the interim as well as somewhere to store your furniture and belongings.
Agreements may provide that the builder can substitute any materials or finishes in the house, without your consent, so long as they are of equal or greater value. If required by the municipality or other governmental authority, the builder can also make alterations to the design or specifications of the home, without notice to you. The builder will also usually reserve the right to make such changes themselves, as long as the variations are minor in nature and do not diminish the value of the home or substantially alter the size or appearance of the home.
Extra Closing Costs
When buying a new home, there are always extra costs over and above the purchase price.
- Adjustments– on closing, adjustments are typically made for the property taxes, TARION enrolment fee, and deed preparation fee. Typically, the builder is credited for having paid the year’s taxes in full, when the deal closes midway through the year. The house will be enrolled in the TARION program, and most builder agreements state that the buyer is responsible for paying the cost of enrolling the house. This cost can be $800-1,200, depending on the value of the property. On closing, there is usually also a credit to the builder for the deed preparation fee. This fee is approximately $150-200 plus HST, and it’s paid to the builder’s lawyer for preparing part of the deed and other documents for closing.
- HST– on new homes, HST is payable on the purchase price, however, there is an HST rebate available in certain circumstances. Most builder agreements state that the purchase price includes HST, however, some do not. In those cases, you will be responsible to pay the HST on the purchase price at closing and apply directly to the Canada Revenue Agency for the rebate. For those deals where it is included, the builder agreement usually states that you will assign the rebate back to the builder at closing, provided that you qualify for the rebate. In order to qualify, you must intend to move into the home or have an immediate family member move in. If you do not qualify for the rebate, you must pay the full HST on closing, and will not receive a credit for the rebate.
- Land Transfer Tax– for every purchase, there is a land transfer tax payable, which is calculated based on the purchase price of the home. However, there is an exemption available, if you are a first-time home buyer. This means that you have never previously owned a home anywhere in the world. The exemption is up to a maximum of $4,000. As a result, you will still be responsible to pay that portion of the land transfer tax that is above $4,000. There is no exemption available if you have previously owned a home. If you are buying a home with your spouse or common-law spouse, and only one of you is a first-time home buyer, ask your lawyer about your ability to qualify for the exemption.
Get it In Writing
Lastly, always remember that if it is not in the agreement, then it is not enforceable. Sometimes, the sales representatives at the sale office will make statements about what can and can’t be done or what is included, etc. If the statement is about something that is important to you, never rely on the statement alone. Always have the specific representation added to the agreement.