What to keep in mind when buying a pre-construction or model home

04 November 2018 by National Bank

When you’re looking to buy a home pre-construction, prefabricated or from a builder with a building permit, you need to do a lot more than flip through a catalogue. Here are four questions to explore to avoid potential pitfalls in this great adventure.

1. Is the builder or manufacturer qualified?

To successfully buy a pre-construction or model home, you need a competent builder or manufacturer. You first need to make sure that they have the licences and permits required to undertake the planned construction work. Then, read up on their reputation and don’t hesitate to ask questions on their experience, visit their finished projects and ask for references. You can also look up their record through a home warranty program in your province (see the table at the end of the article).

2. Will this be your dream home?

Many years can go by before all of the services promised (public transportation, local cafés, etc.) become a reality in a new real estate development. Therefore, it’s better to be comfortable with a bit of uncertainty about your future neighbourhood. Once it’s completed, will it meet your expectations?

Something else to consider: your neighbours. While you can’t choose who you’ll live next door to, you can choose a development that targets a particular type of resident. For instance, if you want your kids making friends with their neighbours, choose a family-friendly area.

3. Am I the right type of person for this adventure?

Even if you delegate plan development and construction to a third party, the project will still be time consuming. In fact, expect to be available on a regular basis to make important decisions; they’ll make all the difference in your satisfaction with the end product.

4. How can I pay for this?

Financial institutions are more involved than usual when it comes to financing the construction of new homes. Expect support and follow up throughout the project, starting with plan approval and a site visit by an inspector authorized by the bank or mortgage loan insurer, who will come to check on the work’s progress before gradually releasing funds.

A holdback for construction liens and material suppliers is legally required and serves as a security for each disbursement as the work progresses. It will be released once the work is completed.

If the land belongs to the builder, financing will be done directly in the builder’s name through their financial institution. They will have to pay interest while the property is being built. Once the work is completed, the buyer will become the owner of the property and will be responsible for repaying the principal and interest.

However, if the land belongs to a buyer who wants a builder to build their house, the client will have to take on interest during the construction period if they need progressive disbursements. The client will start repaying principal and interest once the property is completed.

Ready to start shopping? Enjoy!

New home warranty programs:

There are a number of new home warranty programs. This warranty can be used if the work is not completed on time or if there are any construction defects that need to be fixed.

QUEBEC: Garantie de constructions résidentielles (GCR), Optional programs: APCHQ, ACQ

ONTARIO: Tarion Warranty Corporation


MANITOBA, SASKATCHEWAN: National Home Warranty, New Home Warranty Program of Manitoba, New Home Warranty Program of Saskatchewan

ALBERTA: For a list of recognized warranty programs, visit Alberta’s Municipal Affairs website

BRITISH COLUMBIA: For a list of recognized warranty programs, visit British Columbia’s Homeowner Protection Office website

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