Building A New Home Agreement: The Buyer’s Perspective

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The purchase price and structural aspects of a new home are the natural focus in early discussions between a buyer and the builder’s representative-which eventually lead to signing a purchase agreement.

Adjustments There are other essential items added to the price as adjustments, on or before completion of the transaction. Regrettably, the nature and scale of such adjustments are often not well understood by buyers. These adjustments normally include:

  • Utility connections charges;
  • Landscaping charges (i.e. normally for the cost of planting a tree on the municipal portion of the lands);
  • Municipal property tax adjustments (even though the municipality will not have assessed the proper amount of tax exigible as a result of the new construction);
  • Reimbursement of the Tarion fee paid by the builder to enroll the home under the  New Home Warranty Program;
  • The cost of any new or increase in municipal, provincial or federal government charges levied from the time the purchase agreement was executed to the date of final closing.

These charges, which include items such as municipal development charges and park levies, can prove to be quite significant. The likelihood of these adjustments obviously increases, as the length of the time between the time of signing and final closing also increases.

Limiting Risk For this reason, with the assistance of a lawyer, a buyer should attempt to find an upper ceiling for adjustments, during the week or so that a buyer is allowed to review the purchase agreement. Most builders, when approached on this matter, will not normally accept any ceiling higher than $2,000 to $3,000, primarily because they’ll be compelled to make up the difference from their profit margin.

Taxes Buyers should also be aware that the price in a new home purchase includes an H.S.T. component. The builder commits to the buyer to pay the applicable H.S.T. on behalf of the buyers from the purchase price. However, this commitment is premised on the buyer’s commitment to personally occupy the new dwelling as their primary place of residence, and their assignment of their H.S.T. rebate to the builder. To be clear, this builder commitment does not apply if the buyer is purchasing the dwelling for rental investment. Should the buyers decide at any point prior to the closing, that they wish to now acquire the premises as a rental investment, then they are not entitled to the adjustment made in their favour for the H.S.T. rebate at the time of closing. Consequently, the builder will proceed to add the value of the rebate the buyer is no longer entitled to as an adjustment to the purchase price. As a buyer of a new home, whether it’s a condominium unit or freehold property, the initial foundation for your purchase is having and understanding a well-constructed agreement.