Buying a brand new home? What are the unexpected costs to consider?


There are numerous complications that can overshadow the smell of the new house

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Residential construction has been a booming industry for the last ten years. The Canadian Mortgage and Housing Association reports that 352,588 housing units were under construction in the second quarter of 2022, the highest number in the last 10 years. In one already tight housing market, new home buyers are looking for an opportunity to avoid bidding wars, secure housing and lock in a price for their future home. But things don’t always go according to plan.

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In August, homebuyer in the rural community of Stayner, Ontario. were ordered to pay more than $175,000 over what was agreed in the Briarwood Development Group contracts. The developer says the new price tag reflects costs added due to supply chain disruptions.

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Unfortunately, these problems are not new. In 2019, hundreds of buyers filed an application to acquire the developer, Gupta Group court for revocation his proposed Icona condos in Vaughan, Ontario. These developments are among many new housing developments across Canada that have recently faced large price increases, extensive delays or cancellations, leaving buyers distressed.

The costs are not always included in the contract

While an attorney can help forecast total closing costs after reading the contract, the problem is that not all costs are available, especially when it comes to development costs.

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Development fees are set by the municipalities. They are one-time fees charged by lower or upper level communities to land developers, builders and institutions when they develop or build on a property.

While lawyers cannot predict costs, they can help you reduce or avoid them.

“What I do is I usually explain all that to the client and then I recommend him (the client) to go back to the builder and try to either cancel the cost entirely, whether it was a solid known amount or an unknown amount.” he said. “I suggest they either delete these entirely or put a cap on them. For example, development costs cannot exceed $1,000.”

Teichman says he’s been involved in cases where the development fee was as high as $18,000.

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“The rule is, if you’re going to jump in at the deep end, you better know how deep it is before you jump,” he added.

An experienced lawyer can tell you which builders to avoid

Ron Butler, a mortgage broker at Butler Mortgage, also advises buyers to consult an attorney. According to Butler, a lawyer can help determine what could go wrong in a contract and remove specific sections.

Not only that, experienced real estate attorneys can tell which developer to trust. For Butler, green and inexperienced developers could drive up costs as they may not fully understand the ins and outs of the market.

“Usually most of them are long-term (legal) specialists, they are specialists with 10 to 30 years. So they’ve grappled with each developer and can tell you who’s good and who’s bad. And they can tell you who they’ve never heard of,” Butler said.

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Butler finds that there are typically far fewer problems with large, long-standing builders.

“For example, if you buy something from the builders who’ve been building condos for 40 years, yeah, that kind of thing doesn’t happen,” he added, given the Stayner story or the Icona condo situations.

Big developers are better informed

Aside from being more reputable, established developers are also better informed about developments that might affect their properties.

An example of this is when the Gupta group encountered a zoning issue in 2018. The developer then sent letters to buyers, telling them the property was subject to “restrictive restrictions,” which are legal conditions that prevent him from building the condo. However, one year laterthe group said they cleared the legal hurdle and vowed to build on the same site.

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“Big veteran developers don’t get big surprises when it comes to zoning,” Butler said.

Understand the terms of the contract

Pre-construction buildings are also sensitive to market fluctuations, including bank or Canada increased imposition Interest charges.

“No one can know that material costs will skyrocket. No one knows there will be a new contract with a union,” Butler said. “That will significantly increase the costs.”

With that comes the need to understand conditional sales.

A prerequisite for an agreement is that the builder receives financing by a certain date, sells a certain number of units or simply rezones the property.

But what happens if the builder can’t sell after a downturn or after a BoC rate hike?

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“So if the builder cannot legitimately fulfill a condition and terminate the contract, it can be emotionally and perhaps financially devastating for the buyer. That’s why I always tell people, if you’re going to take a risk, you’d better be willing to take that risk,” the lawyer explained.

Because of this, it’s wise for buyers to save up to four percent on the purchase price to pay for everything from warranty plans to occupancy fees.

While the pre-built route could promise the kitchen of your dreams, you should also understand the risks and costs that come with a brand new home.

This article is informational only and should not be construed as advice. It is provided without any guarantee.



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