5 important steps for your custom home

Do you own land and want to build yourself a home? As you start looking for a builder who can make your dream custom home a reality, it’s important to understand the nuts and bolts of buying a custom or “contract home” and the coverage you have under the builder’s new home warranty.

A “contract home” involves someone who already owns land and enters into a “construction contract” with a builder to build a home on their land. This is very different than buying a pre-construction home (and the property) through a standard new home purchase agreement. There are also rules around how involved you can be in the construction process. If you exercise significant control over construction or personally complete parts of the home, then the home may not be eligible for warranty coverage.

If you have decided to contract out the construction for your new home to a builder, here are key considerations to keep in mind:

1. Use a licensed new home builder – it's the law.
Builders of new homes in Ontario must be licensed by the Home Construction Regulatory Authority (HCRA). Before entering a construction contract, confirm that the builder is licensed by using the HCRA’s online Ontario Builder Directory.

2. Ensure there is a written contract with details of payments, timelines and expectations.
Your contract should clearly state everything included in the home, the work your builder will be doing, cost, and payment schedules. If there is any confusion between you and your builder, or you disagree on what should be provided during construction, this is the document which you will need to rely on.

Plus, your builder must attach a Warranty Information Sheet to the contract that provides an overview of the warranty coverage that comes with your new home.

3. Have the contract reviewed by a lawyer before you sign.
A construction contract is a legal agreement and if there are delays, cost overruns, and changes to initial plans, it’s important to spell out and understand your rights and obligations. Ask an experienced lawyer how to structure payments to your builder as well as explain the rules around construction liens and “holdbacks”.

A holdback is typically an amount of money owed under the contract which is held in reserve as a guarantee that the work is done as expected and in a timely way.

4. Register your contract with Tarion.
When you sign your contract, create a record of your purchase by registering your contract with Tarion.

This allows Tarion to provide you with key details about the warranty program while your new home is being built. It also allows Tarion to inform the HCRA in case a builder is acting illegally, so that the HCRA can take enforcement action.

5. Learn about the warranty coverage that applies to contract homes.
Once you get your keys, your new home comes with a seven-year warranty for construction defects, covering up to $400,000, and beginning on the date you take possession.

If unfortunate circumstances arise and the construction contract is terminated by you or your builder before the home is complete, contract homes are eligible for two types of coverage under the builder’s warranty: financial loss protection and construction warranties.

“Financial loss” is coverage up to $40,000 for any amounts you paid that exceed the value of the work and materials supplied by the builder.

However, if the home reaches at least 97% completion, the home may qualify instead for the construction defect coverage mentioned above.

Whether you are entitled to construction warranties or financial loss protection, Tarion protects you as the builder’s warranty backstop. To learn more about contract homes, visit Tarion.com.