Things to Know Before Buying a New Home
A new home for the purpose of this article is defined as any home that a buyer is buying from a builder, so it could include an infill (new construction in established neighbourhood), show home/spec home which is already built by the builder and put for sale or a home that is to be built in the future.
New homes have gained a lot of popularity over the last few years as many buyers are gravitating towards new builds for various reasons. Some of these reasons may include:
Buyers want to be at the outskirts of the city in new family friendly neighbourhoods.
Buyers want to be with people of same status with similar earnings reflected by higher prices of these new neighbourhoods.
Buyers don’t want to worry about changing windows and HVAC elements or worry about foundation issues. More on this later!
Buyers like the modern look of the house and want a house built with newer codes, technology and materials.
There are likely various other reasons for someone to go with a newer build rather than a resale. However, before you start looking at that option, there are few things you should know:
By the way, if this is too long for you, please give us a call so we can protect your interest and guide you in the right direction in your search for a new home.
You are Picking a House but also the Builder
When you buy any product in the market, you would normally research different companies that produce the product and find very quickly that although products may look the same, they are quite different. Same goes with houses, although all the new homes might look the same, they are vastly different from builder to builder. You are not only picking a house or the layout you like but also the builder, so it is very important to do your research on various builders and pick a builder that has good reputation, good customer service and one that is flexible enough to work with you to build your home.
You Need a Real Estate Agent
If you are thinking of buying a new home, get a real estate agent. The real estate agents who have worked with new builds know a lot about different builders and that knowledge can help you immensely with picking a right builder for you. Plus, you want to be able to see different houses and options from different builders and other than show homes, general public does not have access to any of these homes. Your agent can show you different options offered by different builders more efficiently than you as a buyer approaching every single builder yourself.
New Homes are Negotiable as Well
If you have looked at few new homes, you might have heard that builders don’t negotiate much. Let me tell you, that is not true. There is always ability to negotiate and there are lot of ways to negotiate an offer in your favour without offering less price. Just get a real estate agent who has worked with new builds!
New Homes Crack and Shift
Many buyers are surprised to find cracks and shifting in their new home within the first few years. It is very normal! New homes shift quite a bit within the first year as everything dries and the house is exposed to different elements and freeze and thaw cycle. Most builders will come back after a year and patch all the cracks and fix all the deficiencies caused by defects in materials and labour.
GST and GST Rebate
Buyers must pay GST on the purchase price of a new home. Currently, the GST is 5% which is quite a hefty payment for many home buyers. Most builders are now including the GST net of GST rebate in the listed prices of new homes. However, it is important that you understand how GST and GST rebate works.
On purchase prices up to $350,000, buyers must pay GST of 5% less GST rebate of 36% of GST Payable. So, on a house worth $350,000, net GST would be $11,200 which includes 5% GST at $17,500 less GST rebate of 36% of $17,500 ($6,300) increasing the purchase price to $361,200. On purchase prices above $350,000, the GST rebate decreases and is calculated as follows 6,300 * ($450,000 – Purchase Price)/$100,000. No rebate is allowed on purchase prices above $450,000. Some builders claim the $6,300 GST rebate upfront and if the house is sold for more than $350,000, any reduction in GST rebate is paid to the builder on the closing date. So, if you are thinking of purchasing a new build above $450,000, you might have to pay additional $6,300 on the closing date depending on the builder.
Effective May 1, 2017, the city of Winnipeg imposed impact fee on new builds to help ensure that growth pays for growth. It recognizes that new or expanded infrastructure is required to accommodate growth throughout Winnipeg and imposes some of the costs of this infrastructure on the properties that benefit from the new or expanded infrastructure.
The impact fee is calculated based on the floor area of a proposed residential development. Total floor area is calculated including the floor area of all floors for all buildings measured from the exterior faces of the exterior walls, including areas such as closets, stairs and vents, and excluding accessory structures, basement level and any part of a dwelling unit which is not habitable throughout the year (e.g., porches, sunrooms). The current impact fee rate is $57.47 per m². For example, a 1,200 square feet (111.4836 square meters) residential development would pay an impact fee of approximately $6,407 on top of the purchase price. Many builders are starting to include the impact fee in the listed purchase prices.
National Home Warranty
Builders who are part of the Home Builder’s Association must provide minimum warranty as part of the National Home Warranty Program. In Manitoba, this minimum warranty must include:
Limited Construction Warranty: You’re covered for defects in materials and labour of your home for the first year.
Structural Defect Warranty: You’re covered for structural defects for up to 5 years, including defects in material and labour. Your warranty also covers structural damage that makes your new home unfit to live in.
Limited Construction Warranty: You’re covered for defects in the load bearing structures for up to 5 years.
Maximum Protection: The combined 1-year and 5-year limited construction warranties provide coverage to a maximum of $50,000.
In Manitoba, builders can customize warranties they purchase for their projects. Always refer to your warranty document for actual policy terms and coverages arranged by your builder.
Other Items to Note
Listed Prices are Just the Beginning: The listed prices of the ‘to be built’ houses only include the basic features and materials and any upgrades on top cost money. And from experience, most buyers end up upgrading quite a few items and end up spending thousands of dollars over the base price. This excludes any new homes that are already built. So, if you are looking at building a house and the base price is at the max of your budget, consider picking a house that is $10,000/20,0000 under your max budget so you have a room to do essential upgrades.
Most Builders have Price Escalation Clause: If you are building a house and possession is likely within the next year or so, most builders will have price escalation clause which will state that any increase in the cost of materials will be borne by the buyer. This is a huge risk that buyers take as there is uncertainty as to what the actual cost of the house will be until the house is ready to be moved in.
Landscaping Holdback: The city requires the builders to do front landscaping within the year of completing/selling the house. If the landscaping is not done within that year, a builder may be fined as per city’s discretion. Because the builder is responsible for front landscaping, most builders will holdback couple thousand dollars from the buyer and if the buyer does not do the landscaping within the designated timeframe, the builder will keep the landscaping deposit and complete the landscaping for the buyer. The landscaping holdback is held in lawyer’s trust account until it is either released to the builder or the buyer depending on who completes the landscaping.
Property Taxes: It takes a while for the city to assess property taxes on new builds, approximately 2 years in some cases. While the city is assessing the property taxes, the buyer is only obligated to pay the property taxes on land value, however once the city assesses the property taxes, a back payment will be required since possession date. Buyers can assume property taxes to be 1% of the purchase price and pay the property taxes on that amount and once the actual amount is known, any difference can be adjusted with the city. This option helps buyers as they don’t have to come up with a lump sum once the property taxes are assessed.
Possession Delays: New builds are never ready on time, almost never! So, the possession date is just a target completion date. This is important to know if you are selling your current home or if you are renting a place with a binding lease. When you are buying a new home, expect delays and make sure you have a place to stay if the house is not ready on possession date.
Appliances and AC: Usually new builds don’t come with appliances or the AC unit unless the builder is offering an incentive for buyers to buy by certain date. With that being said, the appliances and AC can always be negotiated in the contract among other things.
Additional Optional Expenses: The optional expenses are endless but most people will definitely consider to do the following at one point or another: backyard landscaping, deck, fence (side fence cost can be shared with the neighbors if they are cooperative) and basement development. None of the above are cheap!
There are lot of other items to consider when buying a new home, however this is just the beginning to get familiar with the most basic concepts. If you are looking to build a new home, give us a call and let us represent you and protect your interest.