Which way to go - brand new or resale home? Buying a new home from a big production builder can be a very exciting event, but it holds potential challenges. Since it's important to make an informed decision, if you prefer this route over buying an existing home in an established neighbourhood, there are some things you should know about buying a brand new home to be built in what was formerly an empty farmer's field.
Aside from the obvious, that your purchase of brand new real estate in Canada is subject to the unpopular Harmonized Sales Tax (HST) (which is usually buried in the purchase price), that builder contract terms are rarely negotiable, and that your possession date is usually many months, if not years away (especially a high-rise condo), it may seem that the differences between buying a new or resale home is negligible, that everything else is completely wonderful.
Whether you're buying a new home or a resale home on an established shady street, with an extremely long closing date, particularly common with new homes, you hope the real estate market remains active, thus maintaining market value or hopefully, rise. Otherwise, you could be left handing over your hard-earned money in exchange for a key to a new home whose market value is lower than what you paid. It would be a bitter pill to swallow. But if you refuse to close the sale, you could ...
... and possibly be held liable by the builder for further monies if he decides to sue you for damages or for what is referred to as specific performance; in other words, he could legally force you to close the deal. This eventuality is particularly likely if the market has slowed since you signed the contract and the value of the property has fallen. It happens.
A difference between a new or resale home is that for a used house, the closings are usually 60 to 90 days. Unless the market is really hot, or it suddenly crashes, market values don't typically fluctuate too much in the short term. And even if they do fall, which sometimes happens, you can just sit tight. It'll come back. Historically, it always does.
If the fixtures haven't already been ordered or installed by the builder, you get to choose your own cabinetry, the colour of the plumbing fixtures (tub, toilets, etc), flooring, exterior cladding (bricks, siding, etc), paint colours, roof shingle colours and maybe even the exterior elevation (architectural style).
Everything will be brand shiny new when you move in. Plus, you get a limited warranty. But that's pretty much where ...
In most cases, you're compelled to buy on the builder's own purchase contract. Make sure you have your lawyer read all the fine print - before signing - on the dotted line because it's typically heavily weighted to favour the builder. Plus, unlike a resale Agreement of Purchase and Sale, the deposit required by a builder is usually very large, and divided into several installments over time.
This is totally understandable since the builder is at the mercy of labour, suppliers, municipalities, weather conditions, not to mention the sometimes fickle buying public and general economy. If sales are slow, he may have to delay construction, sometimes indefinitely and occasionally permanently.
Because of these potential disasters waiting to happen, he usually includes a clause in the contract which will unilaterally permit him the right to postpone the completion of the sale - sometimes up to three times - without penalty.
He must give you a certain amount of notice and your special day is ...
This can be particularly difficult if you've already given notice to your landlord, who subsequently re-rented your apartment. Or worse - you've sold your old used house and must vacate on a previously agreed closing date. Then, you'll have to find temporary accommodation until the builder has finished your brand new home. Thus, you get to live with the infamous double move.
So, new or resale home? Let's see. Say your new home purchase went well, that there were no delays of closing, or you've lived through them without too much grief. You've been through the scheduled inspections with the builder's superintendent and any corrections, touch-ups and repairs have been made (or promised after you move in).
Production builders typically follow the 'just in time' practice, that is the house construction will be completed just in time for closing. The builder doesn't want the expense of carrying it any longer than absolutely necessary.
Your lawyer or closing service completes the sale and you've paid the typically 'higher than most resale' closing costs. You and your family arrive at the front door of your brand new home, ready to crack open the bottle of champagne (or case of beer) to celebrate this long awaited special day. But - surprise - you're welcomed by the sight of workers scampering all over the place in a frantic and often noisy attempt to finish up and get the place clean. Now, you're starting to think you made the wrong decision between a new or resale home.
If there's been little rain, your 'lawn' is a garbage-strewn desert. The driveway is a wide, rutted gravel mess because they can't pave it until the ground settles (if asphalt was even included in the price) and the road, not yet assumed by the municipality, is mired in mud, littered with brick skids and choked with construction vehicles.
The kitchen cabinets are dusty and the basement concrete floors and walls are still curing. And the basement smells damp.
Oh, and it's advised that you delay finishing your dream recreation room for at least a year. If the foundation cracks, which sometimes occurs with new concrete, it obviously has to be repaired. Any collateral damage to your basement improvements are not included in the warranty repair expenses. Hmmm - new or resale home?
And another thing to think about - many of the new construction materials, such as paint, cabinets, flooring, particle board, plywood and vinyl all off-gas ...
That new home smell you like - well, it'll definitely not contribute to your family's health and wellness. The house should be ventilated for several weeks to reduce the toxicity in the air. Oh my - another difference between a new or resale home you never thought about.
For days, and sometimes weeks afterward, workers return to finish small details. You're reluctant to let your kids and pets out into the backyard because it's still a construction site. They've not yet installed the topsoil, let alone the green stuff. And, of course, there's no fencing. That's your dime. If there's been any rain, instead of dust, you get mud ... everywhere. And forget about opening your windows unless you love perpetual ...
Finally, being new construction, you'll usually experience structural settling and hopefully, no cracks in the basement foundation walls. Most settling occurs in the first year or so. Cracks will appear in the walls above door frames, and the paper surface of the drywall in the corners may ripple. Such damage is typically covered in the new home warranty and will be taken care of by the builder. But it's still an inconvenience and potential mess.
If the house next door was sold later, the builder and his heavy equipment may still be excavating and building there for weeks or months ... years if sales have been slow. Therefore, get used to construction noise and dust and mud for awhile. But there's a bonus - serenading in a foreign language by one of the guys working on the construction site next door!
There may also be ...
... close by for shopping. And most often, there's no landscaping or large trees. Unless Mother Nature planted large trees on or adjacent your lot (for which you would probably pay a premium), landscaping is usually your responsibility.
So, it'll be like living in a big brown field. And the public road, especially if the municipality hasn't yet assumed responsibility for it, probably won't have the finish asphalt surface for months.
If your new neighbours have already moved in, hopefully you'll like them because, well, they're ...
Maybe they won't be loud and obnoxious. And maybe they'll take as much pride in their home as you do in yours. If not, their deteriorating property (or not improved) condition may adversely affect the market value and saleability of your home. Oh, and hopefully, they'll not want to park their big truck or camper or boat in their driveway. Bad neighbours may make you wish you'd decided the other way in the great debate of a new or resale home.
I call this game of risk ...
Now, new or resale home? If you buy a resale house in an established area, you pretty much eliminate all such potential negatives. And there's no HST applicable unless it's a brand new or substantially renovated home.
You can't choose your fixtures .. but then again, you can because you choose whether or not to offer on an existing home. If you don't like the kitchen cabinets, you can pass on it or renovate it. If the bath tub is avocado, you can have it re-glazed or replaced. If the house needs renovating, you should be able to buy it at a lower price, if the homeowner is a serious seller. Then finish it just the way you want it.
All contract terms, including completion date, are agreed at the time of purchase, and normally, the seller can't unilaterally alter any of the agreed terms. So, possession date can't be postponed without your express approval. Another difference between a new or resale home is the contract. It's usually a lot simpler and balanced between you and the seller. Plus the deposit is typically lower than for a brand new home.
On moving day, there should be ...
The seller must maintain the property in the same condition as when you viewed it. Thus, the lawn will be in place along with everything else you purchased. No mud, no dust, no construction. And hopefully, the previous owners left it in fairly clean condition. I've heard stories otherwise, but I suspect that's rare.
And here's a really big difference between a new or resale home - landscaping, fencing, decks, air conditioning, driveways, patios, finished basement, fireplace gas inserts, upgraded windows, garage door openers, hardwood floors, ceiling fans, garden sheds, swimming pools ...
Plus any settling has probably occurred long ago and repairs done.
And most important, you had the opportunity to explore the immediate neighbourhood before buying. You may even have met the neighbours already or at least know they have pride of home ownership and don't park a Winnebago in their driveway. You know where the existing schools, shopping centres and the bus stops are located. The parks are established and you can hug your ancient maple tree on the front lawn.
Now, having said all this, I've painted a worse-case scenario to make my point. Nevertheless, keep in mind that a huge difference between a brand new or resale home is they're totally different animals. A new home is a newly manufactured product on which a builder must make a profit. He's got his challenges and does his job usually to the best of his ability, all things considered. If you prefer everything to be brand new and you can live with the disadvantages, then go ahead and buy a brand new home.
Are you undecided whether to buy a new or resale home? Here's another idea. Buy a...
Sometimes, family plans change or life throws a curve and someone who had bought a new house from a builder was forced to list it for sale, maybe a year later, maybe even before they took possession. You'll get all the advantages of a brand new home without many, if not all of the disadvantages. If you like this idea, check with your agent. You might get lucky!
I suppose my bias has shown here. Early in my real estate career, I sold brand new homes. Hence, I know what I'm talking about. My personal preference between a new or resale home was always to own a property in an established neighbourhood.
To me, it makes perfect sense. Click new or resale home for another perspective from the Toronto Home Builders Association, and also The Canadian Home Builders' Association. And for information on new home warranties, visit Tarion Warranty Corporation.
If you're interested in trading in real estate like a pro, including selling your home - with or without an agent - check out my book The Happy Agent. It contains the sum total of the real estate knowledge, philosophies and techniques that I accumulated, practiced and polished during a highly successful 42+ year realty career.
Learn how to effectively
evaluate your home and prepare it for market to maximize the ultimate
sale price, how to
market and advertise effectively, how to handle showings and open houses
like a pro, how to
successfully negotiate an offer and more.
When you consider the huge possible savings in real estate commission with a private sale attempt and the fact that you're dealing with your largest single financial asset, a small investment of your time and a pittance of your money could save you thousands of dollars and a ton of heartache. At the very least, you'll be encouraged to try it alone, at least for awhile. Remember - knowledge is power. Whether buy, seller or both, learn how to negotiate like a pro.
Available virtually everywhere print and e-books are sold.