The Ontario (and Canadian) housing market has slowed significantly from the breakneck pace and record prices seen in 2017 due in part to the new mortgage rules and rising interest rates. This is not unprecedented – similar drops and gains were seen in 2009-2010 – and there are indications that the market is slowly improving. According to the Canadian Mortgage and Housing Corporation, Ontario home prices will continue to grow but at a more moderate pace that is more in line with the rate of inflation.1
The volatility of the real estate market understandably comes with risks for home buyers. What does the current market mean for buyers of pre-construction homes in Ontario? It means that, for some buyers, the value of the home that they purchased at the height of the market may have dropped by the time they are ready to take possession. In fact. we have heard of situations where new buyers are paying less for a home in Phase 2 or 3 of a development than buyers paid in Phase 1. In other cases, buyers are closing on new homes with mortgages based on earlier market values but are faced with homes that are now valued at less.
For buyers finding themselves in these situations, the following information will help in making informed decisions:
Can I get my price reduced by the builder?
Builders sell pre-construction homes based on the market value at the time of purchase. Unless there is something specific in the agreement between the builder and the home buyer, the builder is not required to reduce the price of a home due to a fall in the market leading up to closing. By the same token, builders do not share in the upside of housing price increases and cannot increase the selling price before closing due to these market fluctuations. Homebuyers should know that unless some form of price adjustment clause is included in your agreement, builders are not legally required to adjust the price if market values have changed at the time of possession nor are they required to provide compensation. Homebuyers should discuss any questions they have about their purchase agreement with a real estate lawyer.
Is there any protection for loss of market value under the warranty program?
No. Under the New Home Warranty Program, there is deposit protection in the event that a builder does not or cannot fulfill the Agreement of Purchase and Sale and the deposit monies paid by the homeowner are not returned. The warranty does not allow for compensation to homebuyers for losses related to changes in market values.
My builder will not lower the price of my home due to market fluctuations nor provide compensation and our agreement does not address market changes. Can I refuse to participate in a Pre-Delivery Inspection or refuse to take possession?
The Pre-Delivery Inspection or PDI is your opportunity to do a walk-through of your new home with the builder to learn about your home’s systems and, most importantly, to document anything that is missing, incomplete or damaged. The PDI is an important part of ensuring your warranty rights are protected since it documents the state of the home before you take possession. The builder must complete a PDI Form noting anything that you identify as missing, incomplete or damaged. The PDI Form is not a request for warranty service, but it serves as a work list for your builder and can also be a critical piece of evidence for any future warranty claims.
If you refuse to participate in a PDI, you do so at your own risk. In a situation where a homeowner refuses a PDI, a builder can conduct it on their behalf. The builder can then issue a Certificate of Completion and Possession (CCP) and provide it and a copy of the completed PDI Form to the homeowner. The date on the CCP serves as the warranty start date.
When you purchase a home, you enter into a legal contract with the builder. Before taking any action concerning your home, including the possibility of not taking possession, it is extremely important that you consult with your lawyer regarding your legal options.
1 Current Price Correction in Ontario Housing Market Does not Resemble Historical Price Bust Periods. June 2018. Accessed August 10, 2018