One great thing about building a custom home on land you already own is the freedom to design it to your personal tastes.
But it also comes with significant risks. What if the contract between you and the builder breaks down before your home is finished? The financial losses and stress from a broken contract can quickly turn your custom home dream into a nightmare.
Doing things right from the get-go is the best way to protect yourself. Here are a few important tips to keep in mind before you sign any contracts:
Hire a licensed builder
Does the builder you’re thinking of hiring say they don’t need a license? If so, that’s an instant red flag. The truth is that all builders of new homes in Ontario must be licensed with the Home Construction Regulatory Authority (HCRA). The HCRA ensures builders have the required skills to build and sell new homes and holds them to professional standards of conduct. They also manage an online provincial builder directory that you can use to confirm the builder you’re interested in is licensed. Make sure your builder is licensed before you enter into any agreements.
Make sure your contract is watertight
It’s easy to get carried away during negotiations with your custom home builder and lose sight of reality. One of the biggest mistakes you can make is to rely on verbal agreements. These can easily fall apart and make it difficult to prove what was agreed on. As a rule of thumb, make sure everything is in writing. Your contract should clearly state what you’re getting, how much it’s going to cost and what each person is responsible for. To further protect yourself, have a real estate lawyer prepare, or at least review, your written contract before you sign it.
Understand your warranty coverage
Does your builder tell you that you don’t need the new home warranty? That’s yet another red flag. Almost all new build homes in Ontario must be enrolled into the province’s new home warranty program. As a buyer of a “contract home,” the warranty covers you against financial loss if the relationship between you and the builder breaks down before your home has been completed. It also provides coverage on work and materials for a total of seven years after you move in. Take some time to understand the warranty protection so you can be prepared if you need it.
