For many purchasers, the decision to buy a new home or a resale home can be a difficult one. There are clear advantages and disadvantages to either type of home. Many of the concerns people have are not of a legal nature but tend to deal with factors such as the location of the house in relation to schools, parks and services, or the "character" of an older home.
The advantages of buying a new home rather than a resale home typically revolve around the fact that the structure is brand new, energy-efficient, and made with modern building materials. Because new homes have to be built in accordance with the current Ontario Building Code and municipal by-laws, newer homes tend to be better built than older ones.
The most obvious benefit of buying a new home is that it comes with a warranty provided by the Ontario New Home Warranty Program. This warranty covers a new home owner against defects in workmanship and materials, ensures that the home is fit to live in and is built in accordance with the Ontario Building Code for a period of one year following the date of possession. There is also a two-year warranty on materials and workmanship relating to exterior cladding, water entering the building and any defects in the electrical, plumbing or heating systems. In addition, there is a seven-year warranty protecting the homeowner against major structural defects. These warranties simply do not exist for many resale homes, unless the home was built within the last seven years.
Another benefit of a new home that is a source of comfort for many of my clients is the fact that the homeowner can inspect their new home immediately prior to closing. This is provided as part of the Warranty Program and allows the purchaser, along with a representative of the builder, to view the home prior to closing and make note of any problems that need correction.
Resale homebuyers often have to worry about the shape of the home prior to closing. Because you may enter into an Agreement of Purchase and Sale long before the closing date, it can be a legitimate concern as to what happens to the home prior to closing. For clients purchasing a resale home, this is why I always recommend that a clause be inserted in the Agreement of Purchase and Sale that provides for an opportunity to inspect the property immediately prior to closing.
Another benefit of purchasing a new home is the Land Transfer Tax Refund Program. Under this provincial program, first time buyers of a brand new home from a builder registered with the Ontario New Home Warranty Program can obtain a refund of up to $2,000.00 of land transfer tax. For example, the land transfer tax payable on a $200,000.00 home would be $1,725.00. If you are a first time homebuyer purchasing a new home, this represents a substantial savings.
A disadvantage of purchasing a new home is that the Goods and Services Tax (GST) is payable on the purchase price. Your typical resale home is exempt from GST. For purchasers of a new home, the federal government provides a GST rebate for new homes, which results in a reduction in GST of approximately 36%. Often the new homebuyer does not realize that GST is payable because most builders of new homes include the GST in the total purchase price.
As you can see, there are advantages and disadvantages to buying a new or a resale home. Whatever your choice however, it is always smart to have your lawyer review the Agreement of Purchase and Sale before you sign on the dotted line.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
