For most people, buying a new home is the single largest transaction
they will ever make.
Signing a builder purchase agreement involves entering into a
contract with 10 to 20 pages of small print, written in a strange
language called legalese.
Based on years of experience with thousands of purchase contracts, I
have assembled the ultimate legal guide to buying a new home. Here it
Never sign an
unconditional agreement of purchase and sale until it has been reviewed
by a lawyer experienced in real estate transactions. I find the majority
of buyers still do not have their offers reviewed in advance. As a
result, they may experience a serious case of sticker shock when the
project is delayed, or when they get the bill for closing adjustments.
Find out who pays
the Tarion (new-home warranty) enrolment fee and how much it is. In most
cases, the buyer gets stuck with the cost, even though the warranty
program charges the fee to the builder.
contain small charges that the builder tries to pass on to buyers. Many
builders will delete these on request, since they really don't belong in
a purchase agreement. These charges can include $25 or more to negotiate
each deposit cheque and $250 to negotiate changes to the offer.
Most agreements also
contain larger charges, which can run into the thousands of dollars.
Although there is no stated upper limit to these, most builders will cap
them on request. Larger charges can include new taxes or levies imposed
by any level of government, and connection charges for water, hydro and
Every builder offer
contains a clause that statements made in the sales office are not part
of the deal. So, if the sales agent makes an important promise, put it
in writing in the agreement. Some sales offices hand out a separate list
of estimated extras, but they are not binding unless they're added as a
schedule to the offer.
agreements do not contain detailed floor plans. If a floor plan
containing measurements is not a schedule to the offer, don't sign the
The same advice also
applies to the exterior design or elevation of a house. Although
beautifully rendered sketches of the home design are always handed out
in the sales office, they are rarely attached to the offer as a
schedule. As a result, they do not form part of the contract and the
builder is free to alter the final exterior design.
Remember that the
advertised square footage of a house or condominium is always an
exterior measurement around the outside bricks. Ask what the interior
usable floor space is.
Most offers allow
the builder to change the house size. The Tarion warranty program has a
guideline suggesting that any size reduction should not be greater than
two per cent, but it is not binding. Make sure your agreement contains a
clause guaranteeing the minimum house size to be delivered.
In the same vein,
most offers allow the builder to alter the interior house layout without
the buyer's consent or knowledge. Buyers should discuss with their
lawyers what happens if the house built is not the house they were
expecting. I recommend this clause be deleted.
Consider adding a
clause to the offer guaranteeing a minimum lot frontage and depth. When
it is registered, the plan of subdivision shows the lot sizes. As many
agreements allow the builder to change the lot size without
compensation, offers should require delivery to the buyer of a copy of
the subdivision plan prior to the start of construction, to allow the
buyer to verify lot size in advance.
Insist on getting a
copy of the architect's plans on closing. This will make later
renovations or additions much easier.
A recent wrinkle is
for the buyer to have to rent the furnace and air conditioner. A monthly
furnace rental can cost $75 or more adding significantly to the
carrying charges on a home. The offer should state if the furnace is a
rental, and if so, how much the rent is.
An increasing number
of buyers believe in the ancient principles of feng shui: living in
harmony with the energy of the surrounding environment. If this is an
important factor, discuss with the builder whether these principles can
become part of the house design.
In the same vein,
buyers may be concerned about whether there will be a hydro transformer,
fire hydrant, streetlight or community mailbox in front of the house. If
this is an important factor, it should be clarified with a specific
clause in the offer.
If the purchase
price includes an extra charge for a premium lot, it should be clearly
set out in the offer what features the premium lot will have such as a
larger size, better location or view or proximity to a golf course, park
builder will refuse to connect the appliances. Make sure the offer
requires the builder to install and connect all appliances.
When a sale closes,
some of the purchaser's money will be diverted to pay off and discharge
the construction financing.
All purchase agreements contain a clause requiring the purchaser to
accept a promise or undertaking to register a discharge of the builder's
construction mortgages after closing. Unfortunately, many builder offers
require the purchaser to accept a discharge undertaking given by the
vendor and not its lawyer. If the builder is unable to discharge the
mortgage, the undertaking may not be enforceable and the purchaser does
not get clear title. When I review offers, I make it clear the
undertaking must come from the lawyer, not the builder this is not
negotiable. If the offer has a builder undertaking only, I tell my
clients I will not be able to certify clear title if the clause can't be
Licensed real estate
agents are covered by errors and omission insurance, strict codes of
conduct, and extensive educational requirements, both before and after
registration. Ask your builder sales rep whether he or she is a licensed
Ensure the offer
requires the builder to complete any extras and upgrades that were
ordered. Read the small print on the extras page more often than not
the tiny lettering allows the builder to omit the extra or upgrade and
refund the extra cost.
Many builders attach a schedule to the purchase agreement titled:
Request for Upgrades. If an offer contains this type of schedule, the
builder has the option not to supply the upgrades or extras. Extras or
upgrades should be contractually binding, and not a mere request. .
builder's ability to extend closing. For a house, it can be 250 days
from the closing date in the offer, and for a condominium, occupancy
extensions can often run to two years. If you're selling an existing
house, make sure you try to co-ordinate the closings so you do not wind
up with two houses or none at the closing time.
builder offers prohibit the purchasers from visiting the home under
construction due to insurance reasons. Frankly, I don't buy that
argument. Last year, hundreds of buyers in the Mirvish-Stinson
condominium at 1 King West in Toronto donned hard hats, signed a
liability waiver and toured the unfinished building. If these buyers can
stand at the edge of the 40th floor of a high-rise, it shouldn't be
impossible to tour a two-storey house during construction. Insist on a
contract clause allowing two or three visits before the house is
Remember that a
mortgage pre-approval is subject to many conditions. If you retire, or
lose your job, or there's a marital separation before closing, you may
no longer qualify for financing. If you buy from a builder, the deal is
almost never conditional on financing.
Check out your
ability to borrow up to $20,000 from an RRSP without penalty, and pay it
back over time. If there's still money left in the RRSP, consider
withdrawing it, paying the tax, and using what's left to reduce the
mortgage. I advise clients not to contribute to an RRSP while they have
a mortgage on their house. (See Title Page, Feb. 1, 2003, at
Although it's not
part of the purchase agreement, one of the most important aspects of the
home-buying process is choosing a real estate lawyer.
Decide what is important to you price, expertise, proximity to work
or home, office hours, availability of the lawyer and office staff,
languages spoken, and recommendations from friends.
Consider also whether the lawyer's practice has real estate as a
significant component, or whether real estate is a sideline.
The lawyer's most significant role isn't creating the paperwork, it's
quarterbacking the transaction providing advice when needed, walking
the purchaser through all the steps, explaining the money flow, and
making sure all the participants (builder and builder's lawyer, mortgage
broker and lender, home insurance agent, title insurer) are working
together as a team.
Buying a home, watching it under construction, closing the purchase
and moving in can be extremely stressful. A caring real estate lawyer
can make a rocky path considerably smoother.