The Contract for Your Brand New Home
Once you have found the right builder and decided on the home you
want, you are ready to work out the contractual arrangements. This
can be done at the builder’s sales office, where you and the builder
(or salesperson) can work through the items that go into the
contract. This is the most common approach with large or tract
builders. Alternatively, the builder may write up the contract on
their own and present it to you for consideration. Or you may choose
to have your lawyer prepare the contract.
Commonly referred to as the Agreement of Purchase and Sale, the
contract is a legally binding document that outlines the terms and
conditions of your purchase. There is no mandatory standard form;
many professional new home builders use forms adapted from model
contracts developed by their provincial Home Builders’ Association
or new home warranty program.
Often, the Agreement starts with your offer to purchase the home
from the builder under certain terms and conditions. Once you sign
it, the offer is binding on you. If your builder accepts the offer
and signs the Agreement, it becomes binding on both parties.
Similarly, if your builder presents you with a contract, it is an
“offer to sell” that becomes legally binding on both parties once
you accept.
A sales representative may not be able to “close the deal” without a
review by the builder. Approval or counter-offer is usually quick.
However, under some circumstances, you may consider adding an
irrevocable date to your offer—a deadline for the builder’s
response, after which your offer is no longer valid.
Read the contract carefully before signing it.
Professional new home
builders will go through the contract with you, point by point. This
helps to eliminate errors or possible misunderstandings and is a
great opportunity for you to ask questions. Here are some pointers
for your contract review.
Verify the description of the home
(e.g. model name) and lot.
Make sure you understand what’s
included and not included in the base price of the home—particularly
important if you have based your decisions on a model home with a
mix of standard and upgraded features.
Check that any extras and upgrades
you have chosen are documented accurately (e.g. model, brand name,
size, colour, price).
If the price includes allowances—for instance, for lighting and
kitchen cabinets—the amount should be noted in the contract with a
description of what happens if you go over or under budget.
Payment milestones should be clearly
outlined—e.g. initial deposit upon signing of the contract,
additional deposit when conditions (if any) have been met, possible
construction advances and amount due on closing (when you take
possession of your new home).
The builder (or sales representative)
should issue a receipt for the deposit and a copy should be attached
to the contract. The builder’s refund policy and third-party deposit
warranty should also be described in the contract—your protection in
the unlikely event that the builder for some reason is unable to
honour the contract.
How will you pay for the home? This
must be noted in the contract. It may be as simple as “cash”, or a
description of your mortgage (amount, interest rate, term). If the
contract is conditional on financing, this must be noted clearly,
along with the number of days allotted for obtaining the mortgage,
the process for notifying the builder and what happens if the
mortgage application is turned down (i.e. the contract is null and
void, and the deposit will be returned in full).
All other conditions, such as the
sale of your current home or a favorable review of the contract by
your lawyer, must be similarly detailed. That way, nothing is left
to chance or misinterpretation.
If the new housing tax rebate is
assigned to the builder, it should be noted.
All attachments or schedules that
form part of the contract must be referenced in the main contract
document. This includes site plans, drawings, specification list,
design and approvals process for customized homes, and so on.
The closing date is the day you take
possession of the home. Ask your builder to explain how possible
delays will be handled.
A home purchase is a significant investment, so consider having a
lawyer review the contract before you sign it. A good approach is to
go ahead and finalize the contractual arrangements with your builder
first, but to make them conditional on a favourable legal review.
That way, you are certain that you have reached an agreement with
your builder before you invest in legal advice.
