Most Buyers who buy a new home direct from a builder do so without knowing and understanding the additional risks involved. Below are Kelly Grant's top five risks to successfully mitigate when buying a brand-new home vs. a pre-owned home:
(1). Financial Risks: The list price advertised does not include 5% GST that is applied to new homes and raw land (but rarely applied to pre-owned homes). In addition, extra buyer costs incurred after purchase for a brand new home include uncompleted landscaping, fencing, concrete, and in some cases architectural guideline caveats specifying exactly what type of finishes must be used and when they must be finished. Furthermore, some Builders (like most pre-owned home Sellers on MLS) include the Buyer Agency Commission in their purchase price however for other Builders the Buyer Agency Commission unfortunately must be paid directly by the Buyers to the Buyer's Agent Office on top of the purchase price and is not included. Buyers with REALTOR® representation on New Home Builds gain the advantages of (a). exploring a variety of builders and other buying options to find and purchase the best house that most closely matches their criteria; (b). obtain valuable advice from the Buyer REALTOR's experience of important things to consider that would otherwise be overlooked; and (c). have access to past sales to determine if the purchase price they are paying for their new home is consistent with the current market values for the neighbourhood (i.e. a factor for the property to hold its value best over the life of ownership for future resale).
(2). Schedule Risks: When buying a new condominium, the pace of construction is directly related to the pace at which building units are sold. As a result, you may put a downpayment on a brand-new condo only to discover that it may be several months or years later before the building is finished and you can move into your new home. In some rare cases if not enough units are sold the condominium project can be stopped altogether and never finished. When buying houses, it is not uncommon for builders to fall behind their estimated scheduled completion date by as much as three to six months to a year or more causing anxiousness, extra cost, and confusion for the Buyer as to when exactly their new home will be ready for move-in.
(3). Legal Risks: Some builders may attempt to talk buyers (without representation from a licensed REALTOR®) into the following: ill-advised contractual terms; using the builder’s lawyer rather than using your own independent lawyer; and out of the need for a home inspection - all are not recommended since legal issues and construction quality issues from poor workmanship (e.g. issues that could be avoided by having a certified inspector look at the property) commonly develop on the purchase of new homes (houses, multi-plexes, and condominiums). While there are exceptions, most builder contracts can have as much as 25 to 50+ minor and major legal changes that should be made in order to protect a Buyer’s best interests equal to their protection when using a REALTOR® to write an offer using the Alberta Real Estate Association residential purchase contract.
(4). Location Risks: Many surrounding areas of new home developments are undeveloped at the time of purchase so in the near future there could be an apartment building, school, roadway, or some other undesirable complex that could suddenly become erected across the street or behind your backyard causing a severe decrease in property value and enjoyment.
(5). Construction Risks: Unfortunately many New Home Builders build only to the Minimum Building Code and no more. While this will very often be viewed as acceptable by New Home Warranty Companies when Home Buyers call with a Warranty Issue looking for it to be rectified, the best builders (e.g. Mike Holmes' Approved Builders) will very often go above and beyond Minimum Code to give their clients the best possible product. Therefore when buying a Brand New Home, it is important to consider the quality of workmanship as well as the quality and longevity of the materials installed. For example, if one home has a 20-year roof and regular windows installed while another home priced $20,000 higher has a 50-year roof plus triple-paned windows installed, the roof and windows must definitely become important factors in the Buyers' decision. Furthermore, new homes often have not endured an Edmonton-Area winter and may not show evidence of upcoming problems with settling, cracking, leakage, poor workmanship, etc. whereas for a pre-owned home over one year old, evidence of these issues would often be present since the home would have endured one or more winters already. Construction risks also include the ongoing noise, traffic, and hassle from active construction in the neighborhood. in general, construction risks can often (but not always) be mitigated by carefully vetting the builder, first by on-line and other research, followed by talking to current homeowner references.
In summary, buying a new home has its advantages, but when buying any home Buyers are best advised to consult a Buyer REALTOR® for representation. If the Builder’s contract is used, it is important to insert a Buyer condition for review by a good real estate lawyer to discover any changes that are necessary to protect your best interests, and be sure to get a new home inspected multiple times (i.e. on a regular basis during construction) by a quality certified home inspector.
[Article written and ©2009, ©2020, ©2021 by Kelly Grant, M.Eng., ABR, NCSO, P.Eng. - Residential / Commercial REALTOR® at MaxWell POLARIS in Edmonton, AB]
Disclaimer: for those readers not currently represented by another licensed REALTOR®, to obtain more information on this topic and / or if you will be selling or buying in the Greater Edmonton Area, call Kelly at 780-414-6100 (pager); text Kelly at 780-717-9290; or send Kelly an email to SOLD@KellyGrant.ca to schedule a confidential appointment.
