What’s the difference? Pre-construction vs Existing Homes

modern residential building facade with overgrown plants on ground floor Existing Home Pre-construction
Photo by Ksenia Chernaya on Pexels.com

As a Realtor in Toronto, I get this question all the time from potential new buyers – Should I buy pre-construction or a relatively new existing home? While I can go on about this all day in greater length and detail, here are some key differences to help you make a better decision.

Benefits of Buying New

  • The most obvious benefit to buying new is getting to break in your home. That fresh smell of paint, construction and knowing that no one pooped or smoked there before you brings tremendous value and peace of mind to many home owners.
  • In Ontario, buying new also means you get to benefit from Tarion warranty, an organization designed to hold builders accountable for their workmanship and quality of product. Tarion warranties are transferable so if you buy relatively new, you can still benefit from this, however the most critical Tarion dates are 30 days and 1 year from date of possession, whereby most defects and issues will need to be submitted for resolution. For an outline of what’s covered, click here.
  • You get your own design. Part of the new buying process includes a design/consultation period. This means you get to decide on features, designs, colour pallets and upgrades of your choice. These often come with dollar signs attached, but for many, getting it done prior to moving and having it’s workmanship wrapped into the Tarion warranty is an important value add. If you go down this road, a quick tip is to bring along a designer with you who can help you get the look you want and provide some insight on market prices relative to builders for your upgrades.
  • You don’t have to pay all your deposits up front. Coming up with a 20% down payment is not easy for many, especially if you are a first time home buyer. Buying new often comes with payment schedules, where you can build up towards your 20% over time. This means in theory, if you only have 10% today, you can lock in a property at today’s price, while using your payment period to save towards your full deposit. This can be extremely advantageous in a Sellers market when prices are on the rise.
  • Speaking about price appreciation, some projects that sell today have a completion date set 3 to 5 years out. This means you can purchase at today prices and benefit from years of appreciation without paying the operating costs of the property in between. This is again, incredibly powerful in a Sellers market where the price’s are accelerating over time. One point of caution here is that builders have caught on and began pricing their units higher than current market rates in anticipation of sharing some of that profit with you. You can see how this can quickly turn into a negative experience if the markets shift from Sellers to Buyers and you are caught overpaying for something that went on sale over time.

Benefits of Buying Existing

  • While breaking in a home can be widely viewed as a positive experience, it’s not for everyone. Brand new comes with some stressful disclaimers. Window blinds? Towel racks? Toilet paper holders? Garage door openers? Air Conditioner? don’t assume or take for granted what you come to expect as included, because if there’s a cost to it – chances are your builders are not throwing it in.
  • While Tarion is fantastic for peace of mind, imagine having a new contractor coming into your house every day for the first few months touching things up. Staying home to deal with them, cleaning up after them, and updating your warranty forms. Sometimes, its nice to let someone else deal with the new home warranty.
  • New builds can be tough because you don’t know what you’re going to get. We put a lot of trust in our home builders, and a lot could go wrong in the first year that may not be screaming out at you. You could find roof shingles flying off during your first windy day, or piping issues during your first freezing night. Your brand new home is never really tested until it is.
  • Closing fees can be expensive. Closing new builds can be even more expensive. Talk to your lawyer, real estate agent and mortgage broker before buying to better understand the differences. There are costs associated to buying new that are not associated to buying used and these can be a huge surprise if you are not prepared. Every time a new lot, building, or home is registered with the city, you can bet every utility company and level of government is going to want their piece of the pie to light it up. Check out our resources page to get familiar with some of the fees you can expect when buying a home.
  • The appreciation benefit of buying new has been diminishing over time. As mentioned before, builders are being more strategic about their pricing models, meaning they want part of your potential gain. Make sure your agent is well versed in market evaluation before jumping the gun when you decide you are ready to buy.

In my mind, there is a time and place for both buying pre-construction and an existing build. Any quality agent should help you navigate these two options to help determine what road best suits your needs. For readers outside of the GTA, the general principals listed above may still apply. Most municipalities offer the same regulations and protection, albeit under different names.

Finally, make sure you have an agent you can trust. In most cases, buying pre-construction yields a higher commission rate for the agent than buying existing. Like for like, an agent working for themselves may push you towards what helps them more than you. This is a seldom talked about issue with agents in general, so be aware of external factors and influences before making your decision!

Feel free to drop your thoughts on the comment field below.

If you are interested in learning more about real estate in Toronto, Canada – drop a line or send me a quick message.

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