Buying Pre-Construction

Oct 22, 2019

pre-construction for townhomes

Making the pre-construction home buying process as painless as possible

Purchasing a new pre-construction home is quite different from buying a resale house. Before you sign a deal on a new house, it pays to educate yourself about the process so you’ll know what to expect.

To help ensure the process goes as smoothly as possible and to minimize unpleasant surprises, Dunpar’s Cynthia Del Peschio has this helpful advice if you are planning to purchase a new pre-construction home.

Ensure you are buying from a reputable builder.

· Check out your intended builder’s reputation and research what their timelines were on previous projects. Do your own quality control check. Look at resale homes in previous projects the builder has constructed. Talk to previous buyers to determine what their experience was.

· Go to the Tarion website (Ontario’s new home warranty program) at www.tarion.com and access the Builder Directory. You’ll be able to find out if your builder is registered – it’s mandatory for Ontario builders to register with Tarion – and what the builder’s history is for claims and conciliations.

· Find out what the builder’s specialty is. If they are building many different types of housing, they may not be building a quality product.

Always ask to walk through a model home.

· Models are usually decked out with many upgraded features and finishes. Ask the salesperson what the upgrades are in the model and establish what is NOT included in your intended home’s base price. Request to see what the standard finishes are so you can compare. Ask what the choices of upgrades are, other than those you see in the model home.

· Tip: Ensure central air conditioning is included in the purchase price. Many new home builders charge extra for this.

Floorplans: Be aware that a floor plan is just that … a plan.

· Builders are entitled to make changes so your finished house may not be exactly as depicted in the plan.

· The measurements marked on the plan are taken from the outside walls, so your actual room sizes will be slightly smaller.

· Check that the indicated overall square footage does not include basement, balconies, patios or rooftop.

· Read a room’s actual dimensions. A bed and night tables may be drawn in a bedroom, for example, but in reality the furniture can’t actually fit.

Development charges

· These are fees municipalities collect from developers when a building permit is issued that helps pay for services to a new development, such as roads, parks, transit, water and sewer infrastructure, community centres, libraries, fire and police facilities, etc. These fees are added on at closing to the price of a new house.

· Check if your agreement of purchase and sale stipulates a cap dollar amount you will have to pay on closing.

· If there isn’t a cap on the fees you will have to pay at closing, have your lawyer negotiate a flat fee so there won’t be any surprises.

Tarion warranty

· Ontario’s new home warranty protects new home buyers in the province from the deposit through to ensuring the house is built to Ontario Building Code standards.

· Not every new build is covered by Tarion. Check to see if your builder is covered by the warranty program by looking at the Builder Directory on Tarion’s website.

· Determine a realistic closing date by looking at Tarion’s tentative closing date and adding approximately six months to a year delay. Pre-construction timelines are almost always delayed and you should expect and be prepared for this.

Buying an investment property? 

Registration

· Often in condominium buildings, or housing developments that include some condo elements, there is a period between the occupancy date and the closing date known as the interim occupancy period. While you can move in – or take occupancy – on the occupancy date, the property doesn’t ‘close’ or become legally yours until the closing date.

Closing Date/Interim Occupancy Fee

· The closing date can only happen once the development has been registered with the municipality. Be prepared to pay an interim occupancy fee during this period from the occupancy date until the closing date as you do not legally own your property until it’s registered. The interim occupancy fee is made up of three parts: interest on the unpaid balance of the purchase price, an estimate on the municipal taxes for your home, and a projected common expense contribution.

· Determine what your builder’s policies are during the interim occupancy period. Many builders do not permit you to rent out your property until after the closing day.

· Be aware that your interim occupancy fee does not go towards your mortgage or reduce your principal (you won’t make payments on your mortgage until after closing day). Even if you choose not to move in on your occupancy date or aren’t allowed to rent out your unit, you must still make these payments.

Pre-construction pricing

· A benefit to buying pre-construction is seeing your investment appreciate based on its full value with little money down. Some purchasers want to take advantage of this appreciation and sell before closing. This is called an assignment. Make sure you are aware of any penalties or fees you’ll be obligated to pay to the builder should you choose to exercise the assignment clause.

Pre-Delivery Inspection (PDI)

· The pre-delivery inspection generally takes place two to four weeks prior to your move-in date and is the first time that you will actually see your new home completed. You will be taken through your home by a representative of the builder and identify any details that you feel need to be fixed or repaired and includes any electrical or mechanical items as well as finishing and painting details. This also applies to any items that may have not been included but were written into the agreement of purchase and sale. All these items should be rectified prior to your taking occupancy. Check online to see a sample PDI check list that will help you understand what to look for.

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