new home Tag

Unusual Clauses in New Home Offers

There are at least three unusual clauses that now are appearing the the Builder’s New Home Offers.

Each of the clauses generally allows the Builder to extend the closing date either indefinitely or for up to one year from the closing date.

The three clauses are as follows:

1. Economic Feasibility
2. Conditional on Registration of a Plan of Subdivision
3. Occupancy Date vs. Firm Closing Date

The first clause makes the Offer conditional on the Builder determining whether it is economically feasible to proceed with the subdivision.

The second clause makes your Offer conditional on the Builder obtaining all necessary governmental approvals and registering the Plan of Subdivision.

The third clause states that the closing date in your Offer is not a fixed or real closing date but it is only an estimated occupancy date by your Builder and can be changed at their discretion. This clause typically provides for a firm closing date of not more than one year plus 120 days from the estimated closing date set out in your offer.

What can you do if your Offer contains one or more of these clauses? There are three things:

1. Firstly, see if the builder will delete all the above clauses.
2. Secondly, go to the Building Department to determine how far along the Builder is from receiving their approval to register the Plan of Subdivision.
3. Lastly, have your Lender “CAP” or guarantee your interest rate on your mortgage either until the closing date or for at least 18 months.

Note: All information contained herein is not intended to be specific legal advice and is given for information purposes only. You should always consult with your own lawyer prior to signing any Agreement of Purchase and Sale.

Real Estate Tips: Purchasing New Homes or Condominiums

1. Always make sure the Agreement is conditional on lawyers’ approval.
2. You should also make the Agreement conditional on the sale of your own home and mortgage financing.
3. Do not go firm if you are relying on the sale proceeds of your home to buy the new property unless
   (i) you have a firm sale offer or
   (ii) you have written approval from your bank that you are able to carry both the mortgage on the home you are selling as well as the home you are purchasing.
4. Most Agreements have hidden closing costs. Get the Builder to “cap” these costs at the Agreement presentation stage or before you remove the condition of lawyers’ approval, as same can result in substantial savings to yourself as a Purchaser.
5. Before you remove the condition on financing, have the Builder’s lender or your own financial institution (if they will do it) “cap” or guarantee your interest rate in writing on your mortgage either until the date of closing (preferred) or for 18 months from the date of the Agreement.
6. Verify with the Builder whether the Plan of Subdivision or Condominium Plan has been registered and whether a building permit is available. If it hasn’t been registered, there is a greater risk that your closing date will be extended beyond the date set out in the Agreement.
7. Ask the Builder what other subdivisions he has built. Go to that subdivision and ask the current homeowners how they felt about the Builder and the quality of workmanship of their new home or condominium.
8. Check with Tarion (formerly the Ontario New Home Warranty Plan) as to your Builder’s rating and whether they have received any complaints about your Builder.

Mortgage Qualification

When you purchase a home, whether it is new or resale, the Agreement of Purchase and Sale should always be made conditional on mortgage financing.

Some clients obtain a mortgage pre-approval from a financial institution and are under the mistaken assumption that this approval is sufficient to wait or remove their financing condition in the Agreement of Purchase and Sale.

A mortgage pre-approval is simply a certificate issued by a financial institution stating that you qualify for a mortgage at a certain amount. This certificate is based upon the financial information supplied by yourself as the Purchaser. The financial institution has not verified any of the information you have suppled and until they do so, you are not guaranteed to have a mortgage nor should you waive the condition on financing.

You should ask your financial institution for a firm (no conditional) mortgage commitment guaranteeing the mortgage amount you requested and it should set out all of the terms of the mortgage such as your interest rate, term of mortgage, amortization etc. Per some of our previous editorials, you should also try and get them to guarantee your interest rate to the closing date.

Typical conditions that may be inserted in your mortgage commitment, which you should always try to get removed, are as follows:

• Income verification; or
• Appraisal; or
• CMHC approval.

You should try and give your financial institution all of the information necessary to satisfy the above conditions and ensure they complete their appraisal or CMHC approval prior to the removal of your mortgage condition in your Agreement of Purchase and Sale. You may otherwise end up not being able to close the purchase based upon some of these conditions not being met and you may end up getting sued in the process

Note: All information herein is not intended to be specific legal advice and is given for information purposes only. You should always consult with your own lawyer prior to signing any Agreement of Purchase and Sale.