Questions regarding purchasing a new construction house. (incentive, cheapest, appraisal)
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The area is Ontario, Canada.
My son is considering buying a new house in the $350,000 range, and as I have not moved in 28 years I am out of touch with what is now normal practice, so have some questions:
1) A new house is covered by the Tarion warranty, and is inspected by building inspectors to make sure it meets code, so I assume it is not necessary to pay for a home inspection. Is that correct?
2)Will the sale price of the house be accepted by the bank as a basis for the mortgage or will he need to have it appraised?
3) Is there normally any room for negotiating a discount on a new house? How about on upgrades to cabinets, appliances or fixtures?
4) Will the builder assume any legal costs, or should the buyer get a lawyer to look over the bill of sale?
I realize there is a land transfer tax and costs for utility hookups, the HST is included in the price, are there any other costs to be prepared for?
I just closed on my first new construction house and moved in last week. YMMV but these are my answers based on this experience.
1. I had my own inspector come out pre-drywall to inspect all the framing and systems and then again prior to closing. Worth every penny - the builder corrected every item on my inspection report without any problem at all, and there were numerous small things I never would have identified. Passing code is not the same thing as a house built to your specifications.
2. An appraisal was required. Actually, 2 were as they did a preliminary appraisal after framing and roofing were done to get the approval and then right before closing and disbursement of funds, a second appraisal was done to verify the construction was complete and consistent with the plans that the original valuation had been based on.
3. Depends on your market. I live in a very hot market and the builder did not need to provide incentives, if I didn't buy, there were plenty of others who would. I did use their preferred lender who gave me a credit towards closing costs and since they had the same rates as everyone else, it was worth taking advantage of that credit.
4. I am a lawyer so I was comfortable reviewing the contract. Otherwise, I would strongly recommend having an experienced real estate lawyer review. It should not be very expensive as most of it is boilerplate language.
Other costs: this will be builder dependent but it's not unusual to spend 10-20%, or even more, above your purchase price for upgrades. Some builders include a lot more in the base price, some builders go with the cheapest base price and then everything else is an add on. I spent about 8% on construction upgrades (basement and extended 2nd floor with an added bedroom, plus taking down some walls) and about 15% on upgrades although I will be spending another ~5% beyond that on things I will pay cash for that I could have bought through the builder but could do less expensively and/or with better quality options if I did them afterwards.
Builders do not discount new construction as it sets a new comp for the next house to be built. What they will do is bargain on what upgrades they will throw in "for free."
Real estate in Canada is different so most of us can only offer generalities: get your own inspector, built to code and built as you ordered are not the same thing; if you don't use title companies for closing, by all means get an attorney to review the contract.
The area is Ontario, Canada.
My son is considering buying a new house in the $350,000 range, and as I have not moved in 28 years I am out of touch with what is now normal practice, so have some questions:
1) A new house is covered by the Tarion warranty, and is inspected by building inspectors to make sure it meets code, so I assume it is not necessary to pay for a home inspection. Is that correct?
2)Will the sale price of the house be accepted by the bank as a basis for the mortgage or will he need to have it appraised?
3) Is there normally any room for negotiating a discount on a new house? How about on upgrades to cabinets, appliances or fixtures?
4) Will the builder assume any legal costs, or should the buyer get a lawyer to look over the bill of sale?
I realize there is a land transfer tax and costs for utility hookups, the HST is included in the price, are there any other costs to be prepared for?
Thanks in advance!
I am also buying a brand new house. Pre-drywall walkthrough is next week.
1. I paid $500 for a home inspector (typical in the DC area). Worth every penny. The inspector did not find anything major but it gave me a peace of mind that I am not buying a lemon. The quality of your son's house depends largely on (1) the quality of the subcontractors hired by the builder and (2) the attentiveness of the builder's site supervisor. You should not rely on the fact that the house will come with warranty as there is no guarantee that the builder will fix it in a reasonable time or fix it at all. You can find all kinds of horror stories on the internet for the new home warranty process for all builders.
2. I am working with my credit union and the builder's "preferred lender" on the mortgage. My plan is to get the loan that makes most sense. The preferred lender will give me $10,000 in closing cost but the rate is higher than my credit union. I will need to pay my credit union fees for them to come out to do a appraisal.
3. Yes, especially if you are not using a realtor. However, one thing that they will not typically do is to reduce the price below the base price. Instead, they will offer you upgrades and options. I am getting the house at close to base price with about $45,000 of options put into the contract.
4. The builder will not. It is all in the buying contract.
I realize there is a land transfer tax and costs for utility hookups, the HST is included in the price, are there any other costs to be prepared for?
Any side deals that you can do with the subcontractor. For example, I just paid $4,000 to the low voltage subcontractor for multiple surround sound pre-wirings in multiple rooms, wood blockings between studs for all possible TV locations, pre-wirings for a whole house audio system, upgrade all Cat wirings to Cat6, additional Cat6 drops all possible TV locations, hollow conduits all over the place, pre-wirings for security system, and pre-wiring for security cameras. My builder kind of closed their eyes for LV wiring as they don't offer this service by themselves. I.e., some builders do have additional wirings as official options in the buying process.
Next on my list is to try to make a deal with the insulation subcontractor to blow additional insulations in my attic and make it R-50.
Any side deals that you can do with the subcontractor. For example, I just paid $4,000 to the low voltage subcontractor for multiple surround sound pre-wirings in multiple rooms, wood blockings between studs for all possible TV locations, pre-wirings for a whole house audio system, upgrade all Cat wirings to Cat6, additional Cat6 drops all possible TV locations, hollow conduits all over the place, pre-wirings for security system, and pre-wiring for security cameras. My builder kind of closed their eyes for LV wiring as they don't offer this service by themselves. I.e., some builders do have additional wirings as official options in the buying process.
Next on my list is to try to make a deal with the insulation subcontractor to blow additional insulations in my attic and make it R-50.
This is also going to be builder-dependent. Mine would not allow me to do anything on my own pre-closing. Their explanation was that if I didn't buy the house for some reason, it would end up as a huge legal issue in terms of my having put money and wiring, fixtures, etc. that I owned in a house I did not own. However, I know other people who bought new construction who have been able to run wiring and similar, so it really depends on what the builder will permit.
Ontario, Canada....new house is covered by the Tarion warranty, and is inspected by building inspectors to make sure it meets code, so I assume it is not necessary to pay for a home inspection. Is that correct?.
Just from what I have observed over the years as an appraiser. You buy a new home in a new subdivision, you better plan on being there long after the builder has finished developing the subdivision, because you will lose money on the home as soon as you sign the papers. The reason is that if you have to sell in a year, it is a used home competing against all the deals the builder is offering for the new homes.
Therefore, you will have to wait for general appreciation to bring your home values up to recover the difference. It may be 1-2 years, maybe longer depending on the market.
The best deal is to catch someone selling their dream that is 1-2 years old in the subdivision.
Just from what I have observed over the years as an appraiser. You buy a new home in a new subdivision, you better plan on being there long after the builder has finished developing the subdivision, because you will lose money on the home as soon as you sign the papers. The reason is that if you have to sell in a year, it is a used home competing against all the deals the builder is offering for the new homes.
Therefore, you will have to wait for general appreciation to bring your home values up to recover the difference. It may be 1-2 years, maybe longer depending on the market.
The best deal is to catch someone selling their dream that is 1-2 years old in the subdivision.
That is exactly what it is going on right now in my subdivision. New homes in wooded lots are selling for $750k while existing 1-2 y/o homes (same models) in non-wooded lots are listed for $70k to $90k less. One of them has been on the market for > 90 days, was originally listed at the same price as new ones, price was reduced $80k from original, still no taker.
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