Purchasing real estate is a process that looks different for everyone. Some people have their sights set on a pre-construction, new-build, or custom home, while others opt for resale homes. In between all these real estate types, you’ll find unfinished homes. As the name suggests, these are properties partially completed when they’re put up for sale.
There are many reasons a home might be put up for sale midway through construction such as lack of funds, illness, etc. These half-constructed properties can give people the opportunity to create their dream homes without having to start completely from scratch.
Still, it’s important to be realistic with your expectations. Not all unfinished homes are equal. Some already have a good structure in place, while other homes may still require a significant amount of work, permits and planning, so it’s important to determine if you’re willing to make the financial and time commitment.
We spoke with Lisa Awgu, a REALTOR® and salesperson with RE/MAX Hallmark Realty Group in Ontario, who has helped clients buy unfinished homes, to get expert insights into the process. We also connected with Tanya Ruiter, who recently purchased an unfinished home in Smiths Falls, Ontario, for a buyer’s perspective.
1. Work with a REALTOR®
While unfinished homes may seem like a mystery to some people, acquiring them isn’t too different from purchasing a resale home. However, there are some additional elements to consider. Working with a REALTOR® is crucial as they’ll not only guide you through a typically complicated process, they’ll also make sure you’re protected on all fronts.
“Our REALTOR® made the process of finding our new home so much easier,” recalls Ruiter. “We were able to make decisions about the property very quickly. We received the listing for the property on a Thursday and by Saturday we were the new owners.”
2. Explore your funding options
Cost savings is one of the biggest pros of purchasing an unfinished home. But regardless of whether you’re a first-time home buyer or an experienced real estate owner, the requirements for buying an unfinished home are similar. You’ll still need to have a good credit score, proof of stable income, low debt and the required down payment. But there are some major differences.
“The big difference is unfinished homes don’t qualify for a normal mortgage,” explains Awgu. “The nature of the property means you’ll need a construction loan instead. The lender will usually give you the funds in stages, according to your build stages.” This funding option gives you the ability to finance the remainder of the build. When the construction ends, the loan becomes a standard mortgage. Once you’ve got the loan, map out your budget to avoid any surprises.
3. Secure the permits and plans
Confirm the seller has the original architectural plans, permits, and any other relevant documentation. Make sure these are all transferred to you as the new owner before any work begins.
“We make sure all permits are valid and any work done has been approved to qualify for warranty coverage,” said Awgu. “Our main priority is our client, so we do whatever we can to make sure they’re protected.”
If you’re working with a REALTOR®, contractor, and/or design-builder, they can point you in the right direction, or even get the permits and plans for you.
4. Gather the experts
In addition to your REALTOR®, loan specialist, real estate lawyer and contractor, you’ll need to consider working with a few other experts.
As customization is a big pro for finishing the construction, Ruiter chose to work with a design-builder, which she recommends if this option fits your budget. Design build allows you to combine the construction and design components of the work under one plan, so your home turns out exactly as envisioned. Not all contractors have design expertise, so you’ll have to search for one, or a builder, who does.
As the work progresses, you’ll need to work with professionals for safety inspections, plumbing, electrical, etc. The contractor or builder will typically be the liaison between the homeowner and these experts. You may also need to get in contact with municipal service providers for utilities like hydro and water to make sure the house is properly connected.
5. Have a plan B
In an ideal world, your property will be move-in ready by your planned date. Unfortunately, one of the cons of taking over the construction of an unfinished home is timelines shift. Many reasons can contribute to delays, including shortage of supplies, construction errors, slow processing of permits, contractor illness or injury, weather, shortage of funds and more. So it's important to sort out temporary living arrangements and storage for your things in case of any construction delays.
“You’ll also need to secure a final occupancy permit before you move in,” adds Awgu. “Depending on how much of the home is completed, you may be able to get this permit before the work is completely done.”
6. Prepare to collaborate
Everyone is busy, so it’s understandable you may want to hand over all the plans to the experts. However, your house can only feel like your dream home if you’re involved in the process from start to finish. The contractor and designers will bring options to you based on what you’ve told them you want, but you’ll need to collaborate with them to make decisions.
“Our contractor shopped around for options to recommend to us,” explains Ruiter. “But we also looked for things we liked after agreeing on a budget.”
Another tip Ruiter learned through this process is if you’re on a budget, some of the work can be done by the homeowner. DIY projects like painting are something you can do if you want to give your wallet a break. Just make sure to let your contractor know.
7. Beware of cost creep
Buying an unfinished house can come with additional costs as the build is in progress. Depending on the stage at which the original owner left the property, contractor recommendations, and the inspection report, you may have to shell out some additional cash.
“Beyond the work inside the house, you should also keep in mind the curb appeal of the property,” reminds Awgu. “The way your house looks on the outside is just as important as what you do with the inside.”
Ruiter seconds this advice, adding “you should be prepared to pay for paving, gravel for the driveway, fencing, landscaping, painting and more.”
8. Inject your style
It’s important to have open communication with the team you’re working with. You should be comfortable expressing what you want your customized space to look like, even if it doesn’t align with the vision your contractor or designers have. While they can offer valuable opinions, they’re not the ones who’ll live in the house.
“Don’t let those you’re working with talk you out of something you want for your house. You’re paying a lot of money and investing a lot of time to not get exactly what you want,” says Ruiter.
Buying an unfinished home is not for the faint of heart, but it can be extremely rewarding.
“It’s a great compromise for anyone who has dreamed of building their home but has financial
constraints,” says Ruiter. “It gave me the chance to own a home that I love every piece of.”
Start your journey toward owning your custom dream home by finding a REALTOR® with experience in dealing with unfinished homes.
— REALTOR.ca