A Guide to Buying a New Build Home in Ontario

By Emily Southey | 13 minute read

Does the idea of buying a new-build home in Canada appeal to you? We get it. Buying a pre-construction home or condo in Ontario comes with many benefits. You’ll be the first person to live in that home, there will be minimal maintenance since everything is brand new, and you can avoid a bidding war (which is becoming all too common in the Ontario real estate market). Plus, since you’re purchasing the property before it’s built, you can customize it to your liking. But there are also a few challenges that buying a new-build home represents. Below, we dive into the homebuying process for a pre-construction property in Canada, including the pros and cons of new builds and our expert tips for buying a new-build home.

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What is a Pre-Construction Home?

Nearly one in three homes in Canada are purchased pre-construction. But what exactly is a pre-construction home, you might be wondering? A pre-construction home, sometimes referred to as a new-build home, is bought directly from the builder before it is constructed (hence the name “pre-construction”). Developers typically create master plans for communities and then try to sell the homes they intend to construct. While most pre-construction homes are purchased directly from the builder, it’s also possible to purchase a new-build home from an original buyer who never moved into the property. Purchasing a pre-construction home this way is called an assignment sale.

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Builders will often set up model homes so prospective buyers can get a better idea of what the finished product will look like. Detailed floor plans and lifelike renderings will also be provided to buyers. One of the biggest advantages of purchasing a pre-construction home or condo in Ontario is that you can customize certain details of the space. For example, you may be able to choose the colour of your kitchen cabinets or the material used on your island and countertops. You may even be able to make changes to the layout. The customizations available vary depending on the builder. 

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Payment schedule

Buying and paying for a pre-construction home differs from a traditional home. First, the minimum deposit for a pre-construction property is usually 20% of the purchase price. This can be a hefty sum, prohibiting some Canadians from going this route. Further, the 20% deposit is required before you get a mortgage. Therefore, you will need to have saved a healthy amount of money before buying a pre-construction home. The 20% deposit will be paid on an instalment schedule set by the builder. For example, you might have to pay 5% within 30 days of signing the agreement, another 5% 60 days after signing, another 5% after 90 days, and a final 5% after 120 days. Some payment schedules may have you paying a portion of the deposit the same day you sign the purchase agreement and/or on occupancy. The overall length of the payment schedule varies. Generally speaking, the longer the payment schedule, the more time the buyer has to save the money. Overall, the unique payment schedule that comes with buying a pre-construction home can be daunting. Especially when you consider that the 20% deposit is typically paid in part or full without the help of a mortgage and before moving into the new home, which means you might still be making mortgage or rent payments on your existing property during this time. Make sure that you have the budget for a pre-construction home before signing the purchase agreement. 

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Additional fees to consider

Keep in mind that when purchasing any new home, there are usually additional fees to budget for. Pre-construction homes are no exception. First, when purchasing a new-build home, the advertised price is usually for the base model. Therefore, if you want anything extra added to the home, it’s going to cost more. In some cases, you might be able to negotiate for certain upgrades to be included in the purchase price, but the builder will rarely agree to lower the price of the home. (It’s worth noting that builders might charge more for certain upgrades than if you hired a different contractor to make the upgrades after you move into the home.)

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Two other fees to account for are the land property tax and sales tax. These taxes are added to every home sale in Ontario. Land transfer taxes are paid to the Ontario government, and certain municipalities, like Toronto, have an additional municipal land transfer tax. Meanwhile, sales tax is charged on most goods being sold in Canada, and that extends to real estate. In Ontario, homebuyers must pay the applicable 13% in harmonized sales tax (HST). 

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Lastly, you will need to hire a real estate lawyer to help you close the sale. Your lawyer will review all the legal documents, including the purchase agreement. Legal expenses typically also include conducting a title search and registering the home in your name. As you might suspect, the cost of hiring a lawyer is far from cheap.

The Pros of Buying a New-Build Home

A few advantages of buying a new-build home in Ontario are as follows: 

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• New-build homes can be customized: As mentioned above, one of the greatest benefits of purchasing a new-build home is the customization. When you buy a pre-construction property, you can choose certain finishes and possibly even alter the layout. The extent of customizations is ultimately up to the builder and certain customizations may cost more. But for some people, being able to design their dream home is worth it.
• Minimal maintenance: Since your future home will be brand new, there will be minimal maintenance at the start. Everything should be in good working order for at least a few years, which provides peace of mind to many homeowners. 
• Avoid bidding wars: Bidding wars are nothing short of stressful. Thankfully, when you buy a pre-construction home, you can avoid them altogether. How? Pre-construction purchases are on a first-come-first-served basis. Plus, the price that’s listed is the price you pay. There is no negotiating for a lower price. This prevents builders from pitting buyers against each other in a bidding war to try and sell their homes at the highest price. So if the idea of a back-and-forth bidding war stresses you out, buying a pre-construction home may be very appealing.
• You are the first person to live there: Some homebuyers like the idea that they will be the first person to live in the home. That’s exactly what you get with pre-construction. You will be the first family to inhabit the property, meaning no lingering smells, strange stains, or parts of the home in disrepair. 
• Potential for appreciation: One final pro of buying a pre-construction home is the potential for appreciation. If your pre-construction home is being built in a desirable neighbourhood with a hot real estate market, then chances are it will only appreciate in value with time. This means that when you’re finally ready to move in, it may have increased in value since you first purchased it. When buying any new home, one of the biggest advantages is the possibility that your investment will appreciate in value.

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The Cons of Buying a New-Build Home

While there are many benefits of buying a new-build home, there might also be drawbacks. Some of the potential cons of purchasing a pre-construction home are below:

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• Significant down payment: The main disadvantage of buying a new-build home in Ontario is the significant deposit or down payment required. Deposits are ultimately at the discretion of the builder, but most are 20% of the purchase price. As mentioned previously, 20% is a hefty sum, and one that must be paid before obtaining a mortgage and while you are still paying for your existing property (whether you are leasing your property and have to pay rent each month or own the property and have monthly mortgage payments). Therefore, buying a pre-construction home requires a significant upfront payment that is simply too much for many Canadians. 
• You don’t know exactly what you’re getting: Since the home hasn’t been built yet, you won’t know exactly what it’s going to look like before moving in. While developers nowadays create model homes and offer detailed 3D renderings and floor plans, it’s impossible to know what the home will look like until it’s actually built. Therefore, buying a home pre-construction comes with the risk that you won’t like it as much as you thought. 
• Potential delays during the construction process: Any construction project comes with the potential for delays, and pre-construction homes are no different. Generally speaking, buyers of new-build homes should be prepared for the project to take longer than anticipated. There is also a small risk that the home never gets built.
• Upgrades can be costly: The purchase price of a new-build home is typically for the most basic version of the home. Upgrades can significantly increase the price. Depending on your preferences, you should factor in the cost of the upgrades you want when budgeting for a pre-construction home. 
• Lack of character: One final drawback to purchasing a pre-construction home is that it might be similar to others in the neighbourhood. New homes built in subdivisions are typically similar in esthetic. If charm and character matter to you, then a pre-construction home may not be the way to go. That said, even if pre-construction homes look similar to others on the outside, the potential for customization creates a sense of personalization within the home.

Tips for Buying a New-Build Home in Ontario

If you’re ready to buy a new-build home in Ontario, consider the five tips below. 

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Find a REALTOR®

Just like if you were buying an already-built property, you should start the homebuying process by finding a reputable REALTOR®. Ideally, you’ll want to choose a REALTOR® who has experience with pre-construction homes. In addition, you should always choose a REALTOR® who will have your best interests at heart and has no ties to the seller. (Oftentimes, there are REALTORS® at model homes, but they usually have a special relationship with the builder or developer.) Instead, find a REALTOR® who understands the pre-construction industry and can advise you on which areas, new projects, and developments might be best suited to your needs and budget. They should also be able to structure your offer, negotiate on your behalf, and help you resolve any issues that arise during the building process. Ultimately, you will be working with your REALTOR® for quite some time, given that the time between buying and moving into a pre-construction home is far greater than the average home. So be sure to pick a REALTOR® who is communicative, who you can trust, and who has your best interests at heart. 

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Research the builder’s reputation

Once you’ve found a new-build home that interests you, find out as much as you can about the builder or developer. Your REALTOR® should be able to help you with your research, advising you if they’ve heard any red flags about a particular developer. However, it’s a good idea to conduct your own research as well. Specifically, you should try to find out the builder’s completion record. Searching for the name of the building or development company online is a great place to start. You may also wish to visit one of the builder’s past developments and speak to homeowners in that neighbourhood. 

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Visit both the model home and the home site

When purchasing a pre-construction home, don’t forget to visit both the model home and the home site. Model homes allow homeowners to visualize themselves in the home before it’s built. They are invaluable tools for both sellers and buyers. However, keep in mind that most model homes are not the most basic model. They usually feature a mix of standard features and upgrades. Therefore, the model home you’re walking through likely costs more than the advertised purchase price. 

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Visiting the model home is an obvious step for most homebuyers, but the model home can’t tell you everything. That is why we always recommend visiting the future site of your home. Doing so can give you an idea of what your future neighbourhood will look like, including where the nearest schools, grocery stores, and shops are located. When on a site visit, don’t forget to ask about any upcoming expansion plans in the area. For example, if a new recreation centre, park, or shopping mall is in the works, it’s good to know this so you can factor it into your decision. 

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Be smart about upgrades

Upgrades can be expensive, especially when purchasing a pre-construction home. Sometimes builders will price upgrades way above the market average as a way of increasing profits from buyers. If you’re considering purchasing an upgrade, do your research to find out how much a certain upgrade would cost from a different contractor. Even if the builder is charging a premium, you may ultimately decide that the convenience of having the upgrades completed at the same time as the rest of the home is worth it. 

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Carefully review the purchase agreement

The purchase agreement, formally known as the Agreement of Purchase and Sale (APS), is the official document you will sign to purchase your pre-construction home. An APS is also legally binding, outlining the conditions of the sale and the obligations of both parties. Since a home is a major purchase, you should review the document carefully. We also recommend having your REALTOR® and a real estate lawyer look it over before signing. 

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