Once you have found the right builder and decided on the home you want, you are ready to work out the contractual arrangements. With large builders, this is usually done at the sales office, where you and the salesperson together work through the items that go into the contract. 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 or standard contract form; many professional new home builders use forms adapted from model contracts developed by their provincial Home Builders’ Association or new home warranty program.
What Should the Contract Cover?
The contract will describe the lot, the model, the selected upgrades and other obvious items such as the price and financing terms. In addition, it should include information on restrictions and obligations that may affect your rights and responsibilities as a home owner, such as:
- Rights of way or easements registered against the lot. For instance, will there be a fire hydrant on your lot, or an electrical box?
- Subdivision requirements. For instance, there may be restrictions on the number or kinds of trees that you may plant. Or restrictions on parking commercial vehicles, trailers and boats or performing general automotive maintenance in the driveway. Or on installing a satellite dish.
- Municipal bylaws that regulate activity in the neighbourhood. For instance, are there any restrictions on nanny or in-law suites, home businesses or storage buildings?
All of the above should be covered in “Schedules” which form part of the Agreement of Purchase and Sale.
Making the Offer
Often, the Agreement starts with your offer to purchase the home from the builder. Once you sign the offer, it is binding on you, i.e. you have agreed to all the terms and conditions set out. 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.
When you are not dealing directly with the builder, the sales representative may not be able to “close the deal” on the spot without a review by the builder. Approval or counter-offer is usually quick. However, 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.
Before signing anything, you need to carefully review the contract document. Take your time and make sure that all points are covered and that all Schedules are attached and noted in the Agreement.
It is also recommended that you have a lawyer review the Agreement of Purchase and Sale before you sign it. Alternatively, you can make your offer conditional on a favorable review by your lawyer. It is sometimes wise, and less costly, to agree with the builder on price and terms before involving a lawyer. (If you cannot reach an agreement with the builder on these fundamental points, there is no need to pursue the contract any further.) This condition, like all other conditions, should be written into the main body of the Agreement of Purchase and Sale, or attached as a separate Schedule with a brief notation in the main text.
From Offer to Contract
The process from first offer to final agreement can be quick, or it may involve several steps over a longer period of time. It can be an intense time, but bear in mind that you and the builder are aiming for the same goal.
Your signed offer is presented to the builder who, by the irrevocable date, will either:
- accept it as written. His/her signature on the offer results in a contract that is binding on both parties. Or,
- counter your offer (by changing the price, terms, closing date or other points).Changes are made directly in the Agreement of Purchase and Sale document. A new irrevocable date is set, by which you must respond to the builder’s offer, failing which the offer is no longer valid.
If your builder makes you a counter offer, you may decide to accept it or you may wish to re-counter.
This process continues until an agreement has been reached between you and your builder.
If your accepted offer was conditional on financing, you now need to apply and receive approval for a mortgage within the time specified in the contract. If you are unsuccessful in obtaining the necessary funds, the contract is no longer valid or binding, and your deposit will be returned to you in full. The same process holds true for all other conditions written into the contract.
Bring a copy of the Agreement to your lawyer. When it includes a condition for a legal review, the lawyer may suggest changes to the wording and the clauses of the contract to further promote your interests. The builder should be notified immediately of these recommendations, allowing enough time for a review by the builder and/or the builder’s lawyer before acceptance or possible counter.
Once your offer has been accepted and all conditions have been waived, you have a firm contract.
Review the Contract Before You Sign
Review the Agreement of Purchase and Sale carefully before signing it. Professional new home builders will go through the contract with you, point by point. This helps to eliminate errors or misunderstandings, and it is a great opportunity for you to ask questions. Here are some pointers for your contract review.
- Check for correct spelling of names.
- Verify the description of the home—e.g. lot, model, elevation (orientation on the lot).
- 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.
- 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.
- How will you pay for the home? This must be noted in the contract. It may be 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. It should also be stated clearly what happens if the mortgage application is turned down (e.g. 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.
- 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.
- If the new housing tax rebate is assigned to the builder, it should be noted.
- Similarly, provision of condominium documents, including budget, if applicable, should be noted. This does not pertain to freehold dwellings where ownership includes exterior space.
- The closing date is the day you take possession of the home. Ask your builder to explain how possible delays will be handled.
- The irrevocable date is the date by which the builder must respond to your offer, failing which it is no longer valid.
As noted in Writing Up the Contract, consider having a lawyer review the contract before you sign it.
Understanding Change Orders
Signing a contract with your professional new home builder for a brand new home is the culmination of an exciting process. You have found the home you want and made the commitment to go ahead with the purchase. In many instances, though, this may not be the end of your decision-making. It is not uncommon for homeowners to continue to fine-tune the vision of their new home for weeks afterwards.
A visit to the lighting supplier may trigger a desire for security lighting not included in the contract for your new home. You may decide to go for the fireplace after all or to enlarge the foyer after seeing working drawings. Or you may simply want more electrical outlets.
Professional new home builders will gladly attempt to accommodate any changes or additions you want to make before construction of your home begins, or even when it is in progress. But before you make any decisions, talk with your builder.
Sometimes even small changes can have a significant impact on cost or scheduling, particularly if construction is already under way. It may mean changing some aspect of the construction—for instance, a change in floor coverings may call for a different sub-flooring. Changes can also result in delays. A professional new home builder works with a tight construction schedule and subtrades who move from one task to another and one home to another according to a timetable.
It is crucial that all changes or additions are documented as written change orders and signed by both parties. This eliminates misunderstandings and ensures that everyone, from the people in the sales office to the site crew, knows what has been agreed to.
Change orders are considered extras to the contract. Ask your builder to explain how you are expected to pay for them. Adjustments may be made to the outstanding balance due on closing date, you may be charged separately later, or the cost could be added to a scheduled construction draw.