Buying a brand-new home can mean a lot of different things — an opportunity to get the home you really want, a dream come true, an investment for the future, an achievement to be proud of.
It is also a legal transaction that should never be done without a detailed written contract!
The first rule of homebuying is to get it in writing! A contract, or Agreement of Purchase and Sale, as it is often referred to, spells out the terms between you and your builder — who, what, how, when and how much. It also sets out the rights, restrictions and obligations for each party.
Without a detailed contract, there may be no reference point in case of a misunderstanding or disagreement between you and your builder. It may be impossible to prove what was agreed to, and difficult to enforce any arrangement or promise that’s not written down.
Unlike resale transactions, there is no standard form of Agreement of Purchase and Sale for buying a new home. In some areas, builders may adapt model contracts prepared by their local home builders’ association or their new home warranty provider. Often, though, builders prepare their own agreements and require that you use those forms. As a result, new home contracts can vary considerably from one builder to another.
Typically, a contract will contain information that’s specific to you, the purchaser, and the home you are buying, as well as general information outlining the builder’s practices, limitations, disclaimers and warranty.
This fact sheet presents information on some of the terms and provisions that you may find in a new home sales agreement to illustrate what a contract can cover and why.
Before you sign a contract with your builder, make sure you fully understand what’s in it and what’s not, and that your interests and concerns are addressed and your questions are answered to your satisfaction.
What’s in a New Home Contract?
New home Agreements of Purchase and Sale are generally more complex than resale contracts. This simply reflects the fact that a new home is usually a more complex purchase.
Contracts can range from a few pages to sizeable documents with many schedules or attachments. A quick rule of thumb may be “the more specific, the better”— having things on paper, even minor items, reduces the potential for confusion and conflict.
The purchase of a brand-new home can happen in a number of ways. You may buy a home in a new development from a large building company, or buy from a custom builder to have greater flexibility and choice. You may own a lot and hire a company to construct your home. You may buy a factory-built home for a lot you own or lease. Or you may buy a condominium unit in a high- or low-rise building project.
Each scenario has its own practices and requirements that must be reflected in the contract; however, many contractual considerations are common to all. While this fact sheet is oriented toward the purchase of a home on a lot from a larger builder, it may provide helpful and useful information in other situations.
The following pages highlight some of the information you may find in a builder’s contract. Keep in mind that each builder does business differently. Beyond legal requirements that everyone must follow, each builder has its own unique practices, and the contract will reflect this.
Also be aware that a builder’s contract may include provisions or restrictions for the benefit of the builder. You want to go into your new home purchase with your eyes open. Read the contract carefully and make sure you are familiar and comfortable with everything in it. If you have questions and concerns, talk with your builder. Also have your lawyer or notary review the contract before you sign it.
Please note that “builder” refers to the company or the company representative that you will be dealing with when buying a home. This could be the owner of the company or, in the case of large companies, more likely a salesperson — either a staff member or an outside sales specialist.
What to look for in a contract
Why? Details, explanations
Description of your home
All attachments, or schedules, should be dated and initialed by you and the builder.
You want to eliminate all possibilities for mistakes. If a builder offers several versions of a model or variations on the exterior appearance, verify that the contract describes the right home and the correct details.
Most builders offer a range of upgrades to the standard products used in the home, for example, higher quality carpeting or premium countertops; or additional, optional items, from built-in wine-racks to sunrooms.
Homebuyers can choose to apply for the rebate themselves, or they can assign the rebate to the builder, in essence redirecting payment from Canada Customs and Revenue Agency to the builder.
The cost of buying a new home normally consists of two parts: the actual price of the home and other costs associated with the purchase (see later).
Builders may charge for a variety of other items, to be paid on closing. Check the contract carefully for mention of any additional costs. Also ask the builder to list all additional charges — you want to avoid surprises when you sign the final cheque in your lawyer’s or notary’s office.
Pre-approval usually means that your lender is committed to giving you a mortgage loan up to a certain amount, at a set interest rate and other terms. This commitment is for a specific length of time, after which you have to negotiate new terms and conditions with your lender.
Some builders offer mortgages through their financial institution, sometimes at preferential rates or with added incentives. Before you accept, check the conditions and requirements carefully, and any processing costs involved.
The language in a condition should be easy to understand — what needs to be done, by whom and by when.
In addition to financing, a contract can include other conditions to protect your interests. For instance, you will want your lawyer/notary to review the contract before you sign. Some builders’ agreements contain a standard clause to that effect; in other cases, you may have to add a condition in the body of the main document or as an attachment.
Restrictions on title
“The builder promises that the title is free and clear of all encumbrances, except for…” Your contract should include information about any restrictions on title. Subdivisions may have some form of restrictions that limit what you can do on your property, so it’s important to know.
The builder should be able to identify a start and/or completion date in the contract; however, there may be exceptions. For instance, the builder may be waiting for you to meet certain conditions or for final municipal approvals. In such cases, the contract may note that start dates are approximate. It may also specify what will happen, for example, “If the builder is not able to begin construction of the home within xx days of the signing of the contract (or approval of the mortgage by the buyer’s lender, or … ), the contract is null and void, and the purchaser’s deposit will be returned in full.”
Builders often insert a clause in their contract stating “that the dwelling will be built to the building code standards of the province and the work will be performed in a workmanlike manner”, or similar wording.
Site visits during construction
The construction site can be a dangerous place. Until recently, many builders took a fairly casual approach to site visits. However, given current provincial and national legislation in such areas as labour, safety and negligence, as well as growing limitations on builders’ insurance coverage and greater concern about liability, many builders are now restricting access to the site for homebuyers.
Builders usually offer a variety of colours, patterns and options for many of the finishing products in your new home, such as flooring, counters and cabinets. Many builders offer the services of experienced in-house designers to assist you in this process. At the same time, you may have an opportunity to further customize your home with upgrades and extra features. Depending on the architectural controls in the community, you may also have choices for the exterior finishing (for example, colour and type of cladding, doors, garage treatment).
Change orders: when you want to change something
From start to completion, the construction of your new home will usually take several months. During that time, you may change your mind about some of your decisions, or want to add extra items.
Deviations from the plans: when the builder needs to change something
Most builders’ agreements contain provisions that allow the builder to make minor changes to the home, if needed, without notifying the buyer. As a rule, builders avoid making changes whenever possible; however, there are times when it’s unavoidable.
Depending on the province you live in, builders’ third-party warranty is provided by non-profit new home warranty programs and/or by private insurance companies.
The contract should spell out the builder’s warranty on your new home. Almost all builders offer a one-year after-sales warranty on workmanship and materials. In addition, third-party warranty from an independent warranty corporation is mandatory in Quebec, Ontario and British Columbia (some exceptions apply); everywhere else it is optional. Third-party warranty programs set minimum warranty requirements that builders must comply with; these often go beyond what’s offered by builders who are not covered. The contract should note if your builder is registered with a new home warranty provider, and also specify if your home will be covered by that provider — normally each home is enrolled separately and given an identification number.
In addition, the builder will pass on to you the manufacturers’ warranties on products used in the construction of your home. However, this does not mean that the builder assumes responsibility for these additional warranties.
Pre-delivery inspection, or homeowner walkthrough
Before you take possession of your new home, your builder will usually schedule a time to go through the home with you, usually about a week before closing. The purpose of this is twofold — to inspect the house for completion and to show you how the systems work. Going through the house from top to bottom, inside and out, you will be asked to note any deficiency or defect. This written record, often referred to as the Certificate of completion and/or possession, will be forwarded to the builder’s warranty provider. Most items will be corrected or completed by the builder before you move in, or shortly thereafter. “Seasonal deficiencies” related to items such as decks and landscaping will usually be addressed as soon as weather conditions allow.
Normally the builder is responsible for insuring the home during construction. Buyers may be asked to take over the builder’s insurance policy after closing, if they are also assuming the builder’s mortgage on the home.
Once the contract has been signed, and the conditions have been met, it is binding. There is no easy way for a purchaser to terminate the agreement or change any parts of it, unless the builder agrees.
Many contracts contain a provision to the effect that “the home shall be deemed to be completed when all interior work has been substantially completed so that the building may be reasonably occupied, notwithstanding that there may be outstanding exterior work, such as painting, driveway, grading, sodding and landscaping,” or similar wording.
“This is the whole agreement”
Many contracts also include a statement noting that “the final Agreement (i.e. contract) supersedes all previous agreements and understandings”, or similar wording.
Privacy and consent to disclosures
The purchaser acknowledges that he/she has read and understands this agreement and the terms, conditions, limits and exclusions as described therein.
What Else Should I Know Before We Get to the Contract Signing?
Buying a new home is a big decision. Here are a few more things to consider before you sign on the dotted line.