A common question I receive from buyers is whether to buy New Construction VS Resale. Unfortunately, the question doesn’t have a simple answer. Its a matter of weighing the pros and cons and deciding based on what is important to you. To help aid in this decision I have provided some information below to highlight the pros and cons of both and provide additional information that may be overlooked.
Construction
The OBC (Ontario Building Code) is always under revision which continues to ensure newly constructed homes are held to the highest standard. Additionally, builders aim to create a product that is consistent with the most current design, materials and finishes. Every builder in Ontario is required to have a 7 year warranty coverage through Tarion with a few exceptions (See https://www.tarion.com/builders/what-is-a-new-home-builder/types-of-homes-not-covered for exemptions.) The warranty includes an opportunity for the home owner to provide a list of deficiencies at various times through the next 7 years. This ranges from a pre delivery inspection (PDI) to your 7 year structural warranty. We wont dive too deep into Tarion Warranty, that is a worthy of a separate blog in itself.
As you can see there are many pros when it comes to construction of new home. However, there are pitfalls when it comes to the construction of new homes as well. Common complaints through my experience have been a lack of originality or character, rushed sites resulting in poor workmanship and inadequate service for deficiencies. When you buy resale you may or may not run into construction related problems as well. The major difference here is, you have the opportunity to see the finished product before you purchase it. This allows you time to do your due diligence in ensuring the constructions is up to snuff. When buying new, most of the time you will either be gauging your purchase off a model home or architectural renderings. Do your research if buying new, read reviews of the builder online to ensure you will receive a quality product and the service to support it.
Closing Date
Timing plays an enormous factor when buying new. A firm closing date is set upon purchase but this date can be and often is extended. The Tarion Warranty does ensure that the builder will compensate for a delayed closing but only if the circumstances don’t include unavoidable delays which or not uncommon in the construction world. If you do intend on buying new be prepared to find a temporary living solution in case the closing date is extended. With resale extending a closing is much less prevalent. Trying to gauge the completion of a product which involves numerous parties is much more difficult than a buyer moving in and a seller moving out. For more information on new construction closing terms please go to https://www.tarion.com/homeowners/making-purchase/freehold-homes-firm-closing-date.
Cost
As always, for many cost is the deciding factor. You may see billboards advertising what appear to be very reasonably priced homes. These prices are reflective of “builder grade” homes or “base model” homes. If you decide you want anything outside of the builder package be prepared to pay for it. Upgrades through the builder can be extremely costly so exercise caution prior to purchasing to ensure you are still maintaining the value you had hoped for. According to zillow new construction homes can be up to 20 percent more than resale comps. With resale, when it comes to upgrades, you are getting them at a reduced cost. If you are a frequent real estate blog reader you will have read the “Top 10 renovations to increase value” blogs. The return on investment or ROI is an average or estimated percentage of how much that renovation is going to increase the value of the property by. So if you buy resale and someone has already renovated the kitchen with hopes of receiving 75% ROI, you as the buyer are getting the renovated kitchen for 75 cent on the dollar.
One other thing to always consider when buying new in Ontario is HST. New construction is HST applicable!! There are rebates available but ensure you do your research prior so you know exactly how much you are going to pay. http://buildersontario.com/calculate-hst-homes-ontario is a good link to show you how hst is applied and how to receive rebates. This ties nicely into our next section, investment.
Investment
If you are looking to purchase an investment property beware. With the Ontario real estate market being as strong it has been over the last 10 years purchasing new construction and selling it upon closing would sound like a no brainer. You purchase pre-construction at fair market value and wait 1-2 years for it to built. As the market continues to climb you hold your stake in the market with no loan interest. When the house is near completion you assign the sale, the market is up 10-15%, the subdivision is now complete and attractive and you sell at 25% for more than you purchased for without ever fully taking possession…..genius! Unfortunately the cost and tax associated with this type of investment make the risk hardly worth the reward. Major set backs with this type of investment include capital gain, forfeit of hst rebates and tied up deposit money.
For a detailed list of local Wasaga Beach active and future developments visit https://www.homefinder.ca/new-homes/966-wasaga-beach-area-development.
Both new construction and resale homes have pros and cons. Weigh the options, do the research and purchase based on that. We can help make that decision with you regardless of whether or not it is a new home or resale. Give us a call!