You may have heard that new home construction can cost thousands of dollars over the initial builder’s quote. You sign a contract for a set price, but along the way confusion, errors, and exceeding the stated allowances add up. This need not apply to you. By choosing to work with a reputable Construction Buyer’s Agent® you will be well aware of all aspects of your build. It is important that you make timely, informed decisions and know what you’ve agreed to pay for before it is too late. Today we will discuss the builder’s contract, the allowances and the GST rebate. With a solid understanding of these financial aspects you may save thousands of dollars on your new home build.
The Builder’s Contract
As a new home buyer, you will be asked to sign a contract when you purchase your home. Typically these contracts are subject to one of two things; a builder’s appendix or a Schedule B. They both serve the same function. They stipulate the exact terms and conditions for your build, and both you and the builder will sign off on this before any ground is broken. Since these documents are standard agreements you need to include any changes or upgrades to your new home build. Be specific! Make sure your Realtor® understands exactly what you want to see in your home so that s/he can write a contract that clearly states your preferences to the builder. For example: if you want 5” mouldings and Victorian headers over your doors, then state this in the contract. If you ask for an “upgraded trim package”, such a statement is wide open for misinterpretation and may cost you thousands to fix the builder’s idea of an “upgraded trim package”. It can’t be overstated - be as clear as possible, do not allow any room for misunderstanding.
Allowances
New home builds always include allowances, generally they are for cabinetry, flooring, and light fixtures. This is illustrated in the table below.
|
Allowance |
Used |
Difference |
| Cabinetry |
$15,000 |
$16,000 |
-$1,000 |
| Flooring |
$20,000 |
$18,000 |
+$2,000 |
| Lighting |
$5,000 |
$3,000 |
+$2,000 |
Notice the difference column above, you can see that the buyer saved $3,000. At the end of the build, these savings will be credited back. Many people assume that the allowance amount is a set amount, regardless of how much is spent. In fact, if you save money on one allowance, you can often transfer this saving to another allowance where you may have over-spent. Keep track of your allowances, it is important to know if you are increasing, decreasing or maintaining the original quote for your home.
Make note of the builder’s allowances when you are shopping for a new home. Some builder’s may offer a misleading lower price on a home based on reduced allowances. Before you purchase your home, consider your preferences. Are you looking for hardwood and ceramics throughout your home? If so, this may require a higher flooring allowance. An experienced Construction Buyers Agent® can tell you what you will be able to purchase with the stated allowances.
GST New Housing Rebate
By building a new home, you are creating growth in our economy. To stimulate this development further, the Federal Government offers a rebate on part of the GST you pay on your new home. The following example will explain how this works.
Harmonized Sales Tax, or HST, is made up of two parts, the Provincial Sales Tax (8%) and the Goods and Services Tax (5%). The New Housing Rebate is a portion of the GST (5%).
Imagine that you just purchased a home for $100,000; your GST would be $5,000. The federal government will refund (or rebate) 36% of the GST you pay. In this example you would get back $1,800 ($5,000 x 36%). Simply put, if you purchase a new home and apply for the rebate, it means you pay 11.2% in taxes as opposed to the 13% you would normally pay.
Local builder’s insert a clause in the contract whereby the purchaser will assign their rebate over to the builder. In this scenario, the builder has quoted the price of the home taxed at 11.2% and they are asking the purchaser to allow them to apply for the rebate (the remaining 1.8%). This works for the purchaser because they pay for the house taxed at 11.2% and they don’t have to use their time and money to apply for the rebate and wait for the rebate.
There is one situation where it is in your best interest not to assign the HST rebate to the builder. This happens when you buy your land and then contract a builder to construct your home. In this case you are eligible for a rebate on the land purchase and the home build. But because the federal government will only accept one application per build, if you assign your rebate to a builder you forfeit the allowable rebate on the land purchase. Instead, purchase your home with full tax (13%) and apply for the rebate on the combined cost of the home and the land you purchased.
If you are purchasing a new home, it is important that you understand exactly where your money is going. A Construction Buyer’s Agent® is able to explain these costs to you, and ensure that you are getting the best bang for your buck. For more information on the GST New Housing Rebate click here.
If you are considering building a new home, The Hann Group is the place for you. All of our agents are Construction Buyer’s Agents®, and they are ready to assist you every step of the way. Feel free to contact us anytime.
Worried about your heat and light bill? Next week we will explore tips on building an energy efficient home.