When you buy a new home from a developer or if you are buying a lot and building your own, a new home purchase poses quite a few challenges.
The three biggies are:
-cost overruns
-delay
-deficiencies
So, recommending a homebuilder is fraught with danger–since almost all of them are late in delivery, want more money from you than what’s in the contract you executed (because you signed off on change orders during construction) and deliver a product that has many deficiencies (which makes you triply angry because most of them have after-sales-service that sucks).
Contracts (agreements of purchase and sale, APS) are complicated too.
Here’s an email I sent to a client of mine who is buying a newly created lot (done by way of severance) and hiring a PM (project manager) to build him a new home for his growing famdamily:
Hey Albert (not his real name). Congrats on this deal. #Great Here’re a few notes to help you with this:
- The purchase price for the lot and house is $520,000
- Lot is $195,000
- House is $325,000 (for a 2,400 sq ft home or $135.42 per sq ft—an excellent new build price—many of them are much more expensive like $220 per sq ft!)
- Make sure that this price includes DCs (development charges, which can be $30k or more, building permit, landscaping, driveway and deck/patio)
- Lot is transferred from current owner to you for $195,000 (does not go from current owner to John (your project manager, PM) then to you to avoid paying two land transfer taxes) and so John (and the new build) do not have to be Tarion-registered
- However, when not registered with Tarion, any $$$ you put down or advance are not insured (Tarion will guarantee up to $40,000 in deposits/progress payments on new builds registered with them)
- As a result, if the PM goes bankrupt, you are an unsecured creditor (ie, likely to get 0$ back)
- What is a half-finished house worth? Practically nothing
- The land owner will likely want some kind of downpayment on the lot or at least proof of funds
- If the deposit is $70,000, leave it in your bank account (just show the seller that you have it) or pay it into your lawyer’s escrow account pending completion
- Register your APS on title to protect your interest—agree to postpone it to a first mortgage for construction and to a second mortgage for the lot owner too
- Make sure that if there is a construction mortgage, it’s for bona fide construction on your site and that it is not advanced and registered in one tranche… why is that?
- Because you could end up with two mortgages registered on title (one for the lot purchase, in 2nd place, and another for construction in 1st place, which together amount to $520,000 yet little or no work is done, in which case, your lot is kaput)
- So, your PM only gets an advance in arrears when the work is done and a subsearch has been completed by your real estate lawyer (to make sure there are no construction liens either—here’s where it gets tricky—your PM can get the work done, take the mortgage advance and not pay his subs… landing you in the same position—underwater on your lot and SOL (substantially-out-of-luck) once more)
- You need to be on-site every day to check the work yourself
- Note: HST is likely due and payable on both lot sale and new build so factor that in—check your APS
- Make sure your APS says that the HST rebate goes to the buyer! (You get some of this back; see below—it’s a lot of money)
- Love the walkout basement; plan for a future in-law suite and because of the fantastically deep backyard, a coach house too 😊
BMF
HST rebate on new construction
HST Rules – Ontario
Price of Eligible New Home
(excluding GST and/or HST)
|
GST Portion – New Housing
Rebate
|
Ontario PST Portion – New Housing
Rebate
|
$350,000
|
$6,300
|
$21,000
|
$400,000
|
$3,150
|
$24,000
|
$450,000
|
$0
|
$24,000
|
$500,000
|
$0
|
$24,000
|
https://genworth.ca/en/realtors/hst-ontario.aspx
Bruce M Firestone, B Eng (civil), M Eng-Sci, PhD
Real Estate Investment and Business coach
ROYAL LePAGE Performance Realty broker
Ottawa Senators founder
1-613-762-8884
bruce.firestone@century21.ca
twitter.com/ProfBruce
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brucemfirestone.com
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