How would you feel if you thought you bought a brand new home, but found out later that it wasn’t really all brand new? I know how I’d feel, but I can’t use words like that in a blog like this.

In the older parts of Toronto, some builders incorporate part or all of the foundation walls or exterior walls of the original, older house into a new home. Apart from the obvious difference in construction quality between brand new and original foundation, there are two other significant differences. First, new homes are covered by the government enforced Tarion New Home Warranty. And second, new homes are subject to HST when they are sold, which is what motivates some builders to go the original foundation route.

They do so to avoid paying the HST and to increase their profit. How does this work? Let’s say the market value of a new home is approximately $2 million. When it’s sold, the HST is usually included in the $2 million price and the builder remits approximately $230,000 of HST to the government. When a home looks new yet retains some of its original components, like its foundation, for example, some builders will claim that it’s not a new home and that the HST doesn’t apply. Many buyers will still pay $2 million for it because it looks like a new home to them, but the builder doesn’t remit any HST to the government and pockets the extra $230,000 as additional profit. Sweet deal, don’t you think?

Another tactic used by some builders to avoid the HST and increase their profit is to claim that they are building the home for their own use. They move into the new home they’ve just built, live in it for a while so they can claim that it’s not a new home and that the HST doesn’t apply, and then they sell it. These types of builders often move from home to home every year or so. It’s important to note that there’s even an additional benefit to the builder who uses this tactic: new homes that are built for their owners (in this case the builder) are not required to be registered under the Tarion program so the builder avoids the Tarion registration fees and warranty obligations.

When you’re considering a new home, be sure to ask if it’s covered by the Tarion warranty and ask for the Tarion registration number. Find out if it’s brand new from the ground up, including the foundation. If part of the basement is unfinished, check to see if the foundation walls look new or old and look at the age of the joists to make sure they’re new. Also examine the ceiling height in the basement. New homes will have ceilings that are usually 8′ high (or at least 7′ high) and won’t have any rooms with low ceilings (less than 7′ high). I’d also suggest you have a full home inspection done. In my experience, inspectors find just as many deficiencies in new homes as they do in older homes.

Bottom line: if you’re buying a new home, make sure you get what you’re paying for. Don’t settle for an almost new home with some original components and don’t settle for a home that comes without a warranty. Beside the fact that you won’t be getting full value for your hard earned money, ask yourself if you really want to spend so much money on a home that was built by someone who skirts the rules like this. Doesn’t it make you wonder which other rules they skirted when they built your home?