What Is & Isn’t Covered
Many Canadians love the concept of a home that is built just for them. In fact, almost one third of all homes purchased in Canada annually are newly built homes. There are definitely positives like discounts on your home insurance, not having to fix the mistakes of a previous owner, and the satisfaction of being the first to live in that house. However, when issues crop up with newly built homes, such as mistakes by the builder, are you covered by insurance? The short answer is no, but there are things you can do prior to purchasing that can protect you.
The Good News: You Get Insurance Discounts
Our partner insurance companies offer a maximum discount of 20% for a new home. This number goes down as the home ages, but even if you are buying a home that was built a few years ago, you may qualify for discounts on your homeowner policy. New construction can also mean things like sump pumps in basements and alarm systems, which can mean additional discounts on your policy.
***Photo Courtesy of Trademark Homes in Regina SK.
Title Insurance Does Not Cover Defects
This brochure from the Financial Services Commission of Ontario very clearly lays out what title insurance does and does not cover, and coverage does not vary widely by province. Many homebuyers assume that title insurance will cover undisclosed problems with the home, and this is simply not the case. It only covers you against title-related issues such as liens, encroachments on the property, and errors in public records. It does not cover anything else. That being said, you should always get title insurance, even on a newly-built home, as it is often inexpensive and it shields you from liability on those important title-related issues.
Homeowners Insurance Does Not Cover Defects
Homeowners insurance only applies once you take possession of your home. This means that any damage present in the home prior to the date your policy takes effect is not covered. This includes damage that may have resulted from a mistake made by the builder, such as a sinking foundation or water damage arising from a poorly sealed basement.
Water damage is a whole other issue; many policies require riders to be put in place to cover any water damage at all, so when getting a new policy you’ll want to ask about this coverage. Additionally, if you know of problems with the home before getting your policy, you must disclose them to your insurance company. It’s best to get them fixed prior to taking out a policy to avoid potential rate increases due to known issues.
Government Warranties May Not Cover You
Only British Columbia, Ontario and Quebec have new home warranty programs offered through the government. In all other provinces, you must rely on the builder’s warranty program. Before signing on any dotted lines, make sure you give your lawyer a copy of the warranty agreement and ask them to vet it to make sure that you’re covered. If you’re not, strike out and have your lawyer rewrite any questionable passages and give it to your builder to sign off on before purchasing.
Due Diligence is Important Before and During the Homebuilding Process
Do your research before purchasing a brand new home. Specifically, look at the reputation of the builder. Check out the Better Business Bureau for any complaints that the builder may have against them and how they were resolved. While it’s not uncommon for a builder to have complaints listed with the BBB, look for the complaints to be closed with a satisfactory resolution. A number of unclosed complaints or complaints closed without acknowledgement from the complainant are what you want to look out for.
If you’re buying in a development that’s an add-on to an existing one and you’re the gregarious type, try knocking on a few doors in the development and ask previous homebuyers how satisfied they were with their experience. Yes, it’s mildly invasive, but you’ll get unvarnished opinions about your potential purchase that are worth those first few awkward moments. Don’t bother asking builders for testimonials as these are always the “best foot forward” examples.
Once you do make the purchase, make site visits as often as you can. You’ll likely need to be escorted by the builder and have to schedule it with them, but it’s an opportunity to get on top of mistakes before they happen. For example, if you’ve requested granite counters and you notice that they aren’t being installed, you can point this out before you move in.
Of course, not every newly-built home is a loaded gun. Most are built by reputable builders who value their reputation and want to make their buyers happy. But it is up to you to make sure you are covered in the event of an issue. If you are considering the purchase of a newly built home, read this MoneySense article on The Top 10 Mistakes New Home Buyers Make.
If you’re looking for insurance or a mortgage for your new home purchase, we offer insurance and mortgage brokers under one roof, which gives you a little more time to investigate all the other things you’ll need to look at when purchasing a new home.