When you buy a new home, the contract, or the signed Agreement of Purchase and Sale document, between you and your builder is your assurance that you will receive exactly what you have purchased, at the price that you have agreed to.
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. Ask your builder or sales representative the following questions:
- Is there a right of way or an easement registered against the lot? For instance, will there be a fire hydrant on your lot, or an electrical box?
- Are there any subdivision requirements that must be followed? The agreement between the developer and the municipality may specify certain requirements which you in turn must respect. For instance, the agreement may stipulate a minimum of one tree per lot, or it may place restrictions on the kinds of trees that you may plant.
- Other subdivision restrictions may apply to parking commercial vehicles, trailers and boats or performing general automotive maintenance in the driveway; installing a satellite dish; or using an outdoor clothesline.
- Are there municipal bylaws that will regulate activity in your new neighbourhood? For instance, are there restrictions on nanny 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 When you make an offer, you are in effect agreeing to all of the terms and conditions as set out in the document.
- Before signing, have a lawyer review the Agreement of Purchase and Sale. (Keep in mind that an offer signed by you, and accepted and signed by the builder, is a legally binding contract on both parties.)
- Alternatively, make your offer conditional on your lawyer's favourable review. 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.
Before signing the offer, make sure that you (and your lawyer) check the following points:
- Correct lot, model and elevation (the orientation of the house on the lot).
- Correct spelling of names.
- The listing of all Schedules as part of the contract (site plan, floor plan, specifications, restrictive covenants if applicable and warranties; also, all conditions such as financing, sale of current home, lawyer approval).
- Price, including net GST for owner occupants.
- Mortgage information (principal, interest rate, term). If the offer is conditional on financing, the Agreement should also also specify the number of days allotted for obtaining the mortgage, the process for notifying the builder and what will happen if the mortgage application is turned down (i.e., the buyer's deposit will be returned in full).
- Receipt of condominium documents, including budget (if applicable; this does not pertain to freehold dwellings where ownership includes exterior space).
- Deposit structure, linked to construction stages or other "milestones" (such as "an additional $10,000 upon a firm agreement").
- The closing date (the date when the purchaser takes possession of the new home).
- The irrevocable date: the date when the builder must respond to your offer, failing which the offer is no longer valid.
- Take your time when reviewing the contract. Make sure that all points are covered and that all Schedules are attached and noted in the Agreement. Then you can go ahead and sign the contract, confident in the knowledge that you have done your homework properly.
From Offer To Contract The process from offer to final agreement can be quick and brief, or it may involve several steps over a longer period of time. For purchasers, this can be an intense time as you are getting closer to realizing the dream of owning a new home. Bear in mind that both 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 set, by when 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.
At the same time, bring a copy of the contract to your lawyer. Where applicable, you also need to satisfy the condition of a legal review. The lawyer may suggest changes to the wording and the clauses of the contract to further promote your interests. Immediately notify the builder 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. Your lawyer will begin the legal process of transferring ownership of the home and you can now go on to the next, and perhaps most, exciting step of home buying . . . getting ready to move into your new home!
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