Typical new home purchasers will spend a considerable amount of time researching the community profiles of the areas of interest as well as researching the benefits of new home purchases vs. re-sale homes. Few, however, take the time to research the details of the purchase or what is involved in a real estate purchase agreement. You should be aware that all purchases of real estate in Alberta are done in writing and contracts for the purchase of newly constructed homes contain significant terms and clauses that benefit the purchasers.

For instance, the deposit protection afforded under a new home warranty program in Alberta is the most comprehensive in Canada and ensures that your initial deposits are protected to limits defined in the agreement should the builder default. What is often overlooked is that deposits differ from down payments and they are not the same thing. Deposits are monies placed with the builder or lawyer as an indication of sincerity and good faith by a purchaser and all contracts must include deposits of some amount. Down payments are monies paid to bridge the difference in purchase price and total price. In the event of default by the purchaser the builder may be entitled to retain the deposits as damages towards costs. Down payments however are not retained by the builder.

To illustrate the point, suppose a purchase agreement of $400,000 contains an initial deposit of $5,000 and an additional deposit of $35,000 with further payments of $50,000 upon closing. In the event of a default, the deposits totaling $40,000 are defined as “initial” and “additional” meaning they are designated as deposits and treated as such. The down payment amount of $50,000 would not be in jeopardy as the amount is described as a “cash to close” or balance of down payment. Deposits may make up part of the down payment but are treated separately.

Certainly, reputable builders will always carefully explain the contract to their customers and provide the opportunity for review by a lawyer. Ensure your contract is well written and be sure to understand the terms prior to approving the agreement by signature. Consult a lawyer for full explanations of your obligations and rights under the agreement.