Building a custom home? Insist on a proper contract

By Howard Bogach
June 17, 2016

To many new-home buyers, the opportunity to build a custom home is the dream of a lifetime. You own the land, choose the builder, and have so much more flexibility when it comes to deciding the style, the layout and the finishes. In fact, every last detail can have your personal stamp. If you are lucky enough to find yourself embarking on this dream, start the journey with a written contract. Never accept, settle or seal the deal with just a handshake – make sure you get off to the right start by protecting yourself properly from the very beginning.

Like most new homes in Ontario, contract homes are usually covered under warranty. This warranty is provided by your builder and backed by Tarion. It includes financial loss of up to $40,000 if your builder fails to substantially complete the home, in addition to three separate construction warranties after you move into your home for defects in workmanship, violations to the Ontario Building Code and major structural damage.

We recently dealt with a tragic story of a woman who failed to secure a written agreement and found herself defrauded of money – after the builder knocked down her old house. So, please take this advice, before you make any concrete decisions about your new home or spend any money, make sure that you’ve taken steps to protect yourself, including:

Use a registered builder

New home builders in Ontario must register with Tarion. We regularly review their technical competence and financial viability to build homes. So, before you choose your builder, check the Ontario Builder Directory at tarion.com to make sure they are registered. If your builder is not listed in this directory beware — they may by building illegally!

Make sure your contract is in writing

When the only agreement in place between you and a new home builder is a handshake, you have no way to prove what was agreed upon if that agreement every falls apart. Protect yourself right from the start by making sure your agreement is a proper written contract, ideally created or at least reviewed by a lawyer. The contract should also be as specific as possible about the work that will be done.

Include a schedule of payments

A good contract will include a schedule of payments. The schedule should outline when you are going to provide funds to your builder, how much, and what for. If your builder does not fulfill the requirements outlined in your contract, Tarion will be able to determine how much you should have paid for the stage your home is currently in.

Hire a lawyer to review your contract

As noted above, once you have a verbal agreement with your new home builder, take it to an experienced real estate lawyer to be written into a binding contract. At the very least, have a lawyer review your written agreement to ensure that it protects you if the relationship with your builder turns badly.

Building a custom home is very exciting, especially if it is the dream home you’ve been working, saving and waiting so long for. To protect yourself, don’t allow your emotions to rush you blindly into a flawed agreement or worse, no agreement. You may have many choices ahead of you when it comes to realizing the dream of a custom home, but a solid contract is not one of them – consider it a must, not a choice.

About Howard Bogach

Howard Bogach est président et chef de la direction de Tarion Warranty Corp. Il publie une chronique mensuelle dans New Home Guide. Pour en savoir plus sur les services que Tarion offre aux acheteurs de maison neuve, visitez le site tarion.com ou Facebook à facebook.com/TarionWarrantyCorp.

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