Are you pursuing a new construction project? Perhaps you want to buy a home that is brand-new, or perhaps you want to understand new construction in a real estate market. To help, here is a Q & A that covers a few important topics related to new construction.
The best way to determine if your builder will do a good job is to ask your RALTOR®, who knows the real estate market. Here are questions you should ask of any new builder when you go to build and buy a home:
• How long has the builder been in business?
• How many homes do they typically build in a year?
• Are there any finished homes we can view?
• What is the builder’s after-sale service policy?
• Does the builder belong to a professional organization such as the Saskatchewan Home Builders’ Association?
• What New Home Warranty Program has the builder registered homes with?
• Is the home enrolled with a New Home Warranty Program?
You’ll want to have all your information before you choose to buy a home, and having a new construction Q&A with your builder is a good start.
There are a number of new home warranty products available to builders, and each will vary.
In the Saskatchewan real estate market, builders can customize warranties they purchase for their projects. Always refer to your warranty document for actual policy terms and coverages arranged by your builder when you buy a home.
Most policies offer a Limited Construction Warranty. This means you're covered for defects in materials and labour of your home for the first year.
Structural Defect Warranty
You’re covered for structural defects for up to 5 years, including defects in material and labour. Your warranty also covers structural damage that makes your new home unfit to live in.
Limited Construction Warranty
You’re covered for defects in the load-bearing structures for up to 5 years.
Foundation Water Penetration Warranty
You’re covered against water penetration in the foundations of your home for up to 5 years.
The combined 1-year and 5-year limited construction warranties provide coverage to a maximum of $50,000.
Saskatchewan New Home Warranty Program Coverage
1) DEPOSIT PROTECTION
For all houses registered after January 1st, 2008, the initial deposit for the purchase of your new home is protected up to a maximum of $25,000 in the event the deposit becomes legally refundable and cannot be recovered because of bankruptcy, default, insolvency or fraud on the part of the builder. It does not cover reimbursement because of a contract dispute between the parties.
2) WORKMANSHIP AND MATERIALS PROTECTION- ONE YEAR*
All Registered Builders are required to warrant that the house is constructed in accordance with the building standards prescribed by the Province of Saskatchewan and the New Home Warranty "Construction Performance Standards" that the house is free from defects in workmanship and materials for a period of one year from the date of possession.
3) WATER LEAKS PROTECTION - TWO YEARS*
Registered Builders warrant that the building envelope (roof, exterior cladding, windows and doors) and the basement foundation walls will be free of exterior water penetration for two years from original occupancy.
4) MAJOR STRUCTURAL DEFECTS PROTECTION - FIVE YEARS*
All Registered builders warrant that your home will be protected against Major Structural Defects for five years from the date of possession. Major Structural Defects mean defects in workmanship or material which have or are likely to have an adverse effect on the performance of the load-bearing portion of the home such as footings, piles, basement walls, beams, floor joists, teleposts, load-bearing walls, and roof trusses.
5) OPTIONAL EXTENDED WARRANTY- MAJOR STRUCTURAL DEFECTS
An optional 5-year Extended Major Structural Defect Warranty is available for eligible single-family houses enrolled after 1992. This would protect your home against major structural defects from the sixth year to the tenth year. The maximum protection would be $20,000 for all houses enrolled by the builder before January 1st, 1998, and $50,000 for all houses enrolled by the builder on or after January 1st, 1998, and $75,000 for all houses registered on or after January 1st, 2008. (Note: Extended warranty coverage is not available on condominium units).
*The total combined limit of protection for workmanship and materials, water leaks and Major Structural Defects is $20,000 for all single-family houses enrolled by the builder before January 1st, 1998. All houses enrolled by the builder on or after January 1st, 1998 to December 31st, 2007, have a total combined limit of protection of $50,000 and all single-family houses registered after January 1st, 2008 have a total combined limit of protection of $75,000. Condominium Projects have an overall maximum coverage of $500,000 between January 1st, 1998 to December 31st, 2007. All condominium projects enrolled on or after January 1st, 2008, have a maximum coverage of $750,000.
*The remaining warranty is transferable to subsequent purchasers. The remaining term of the warranty coverage is automatically transferrable to any person(s) who subsequently become the registered owner(s) of the home.
Progressive New Home Warranty Single Family Home Coverage
• 1 Year Materials And Labour Warranty
• 2 Year Mechanical Systems Warranty
• 5 Year Foundation Water Penetration Warranty
• 10 Year Structural Defect Warranty
• $25,000 Deposit Security Warranty
• $6,000 Additional Living Expense Coverage
• $100,000 Total Warranty Limit
Lenders will grant financing approval provided that the home is registered with a new home warranty company, is under a purchase agreement, and permitted blueprints can be provided along with a legal land description.
In many cases, the process will be much simpler and smoother once the lender understands that the home is listed on the MLS system, as it immediately legitimizes the authenticity of the property.
Once you have been prequalified for a mortgage loan and know your purchase limit, you will want to consider the size of the security deposit.
Typically, the greater the customization, the greater the deposit. Currently, there are good new home warranty programs that will protect your deposit to a max of $25,000. However, a builder may require more than $25,000 if customization will be specific to personal needs and tastes.
For example, a $1 million project could require a $100,000 or $200,000 deposit and a $700,000 project could require a $50,000 deposit. If the home design is a standard one that builder has built before and you are only customizing the colours and finishes, a $25,000 deposit may be adequate. Each case is unique.
The key is to work with a known reputable new construction builder who is well-established, financially secure, and values protecting an already good reputation.
The next consideration will be the type of mortgage. Some builders will finance the project and then include their interest costs in the purchase price. This can be especially favourable if the builder has access to lower interest rates. With this arrangement mortgage funds are released to the builder upon contracted completion date.
Other builders require staggered payment. These are also referred to as progress payment. This arrangement is known as a builder's mortgage or a new construction mortgage. The number of payments will depend on the lender, but 3 to 4 is typical. The lender will send an appraiser to the property for each payment request, as assurance that work has been completed. Appraisal fees will be calculated into the financing costs.
A reputable builder should have a home built within 5 to 6 months of acquiring the building permit (specific to the blueprints you have chosen). An elaborate custom home will take longer, as size, specialized craftsmanship, and special order building materials could cause a longer process. But once you have chosen your site and blueprints, the builder will be given a completion date, which will be put into your legal contract.
In most cases a clause will be added, allowing for reasonable flexibility on completion date in case of delay due to circumstances outside of the builder's control, i.e. bad weather or special order building materials arriving defective. A clause should also be written to protect you from unreasonable delays and to specify how much notice you will be given in the case of a delay.
Discuss these ideas with you RALTOR® early in the process, so you are comfortable when it is time to move forward.
As you can see from the material above, building a home can be complicated.
Building your own home is even more complicated. This is not to say you can't or shouldn't do it. Many private builders have succeeded with great personal satisfaction.
First, acquire the land by contacting the city or municipality you plan to build in. In some cases, you will be able to purchase land from a developer. Research where you want your home to be and then who owns the land. In some cases, developers are also builders, and not interested in selling land to private builders.
The process will vary in each city or municipality. For example, in the Saskatoon real estate market, city land is sold through a draw system. Dates and times vary from year to year, so you will want to contact the Saskatoon land branch for specifics.
Any lots drawn that are not desirable remain for purchase over the counter, so be sure to inquire about this inventory as well.
Before you purchase the land, be certain the lot zoning and dimensions will fit your design. Financing is difficult when building privately, so know where you stand.
If you want to buy a home through new construction, the information in this Q&A should get you started. If you have questions about new construction that aren’t covered in this Q&A, or you want to know more about the local real estate market when you go to buy a home, please feel free to contact us.