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Rashid Notash, Broker
416-500-5360 | [email protected]
The Condo Assignment Process: Everything You Should Know
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September 15, 2018 | Selling
Condo assignment sales are different from typical pre-construction transactions. Whether you’re on the buyer or seller side, the condo assignment process is unique—which is why you should take the time to learn about the costs, timelines, and other specifics involved.
If you’re thinking about buying or selling a condo on assignment, here’s what you should know…
What is a condo assignment sale.
An assignment sale occurs when a pre-construction condo buyer decides to sell before closing. Since they don’t technically own their unit (which may not be completed yet), what they’re really selling is their purchase agreement with the builder.
The concept sounds simple. However, there are some ins and outs that both sellers and buyers should know to ensure that their transaction is legally above board—and in their best interests.
Seller FAQs
Thinking of selling your pre-construction condo on assignment? Here are some answers to the most commonly asked questions sellers have about the process.
Should I sell my condo on assignment?
Pre-construction buyers often sell condos on assignment as part of an investment strategy. That said, there are other instances where going this route makes sense.
Maybe your lifestyle has changed, and the unit you were excited about a year ago is no longer ideal. Perhaps you’re facing some financial challenges, and you need some cash in the short term. Whatever your circumstances, a real estate agent with condo expertise can help you decide if selling on assignment is right for you.
What are the tax implications of selling on assignment?
While there’s nothing wrong with assignment sales, some Canadian investors have gotten themselves in hot water for making them without paying taxes on their profits. Regulators have been cracking down on these transactions, which is why knowing your taxation responsibilities is crucial.
The bottom line? If you’re making an assignment sale, it’s best to speak with a financial expert before moving forward.
Does the builder need to be involved?
Your Agreement of Purchase and Sale will specify whether selling your condo on assignment is permitted. Either way, you should obtain consent beforehand. There’s a very good chance that builder approval of an assignment sale is a condition in your contract—so read it carefully.
How much will it cost to sell on assignment?
If the builder signs off on your sale, you’ll probably still have to pay a fee. This sum could range from a few hundred dollars to several thousand, and in some instances it is waived by the developer. You should also be aware that, along with the regular costs associated with selling, your legal fees may be higher than they would be for a simpler transaction.
Will I get my deposit back?
A purchaser who is buying on assignment (also known as an “assignee”) usually pays the assignor their full deposit. As part of a typical deal, you should receive the amount you’ve paid to date, sometimes along with your profit, on closing day.
How can I find a buyer?
Be aware that there are marketing restrictions placed on most assignment sales. While it depends on the terms of your agreement with the builder, you probably won’t be able to post on the MLS or online.
If you market your assignment in violation of your contract, the builder may be able to cancel your agreement—and hold onto your deposit. For this reason, working with an agent who knows the local condo market is your best bet for finding a buyer.
Are you thinking of purchasing a pre-construction condo on assignment? Read answers to some of the most common questions buyers have first.
When is buying a condo on assignment a good idea?
If you’re excited about a particular condo development that has no remaining inventory, buying on assignment could be your way into the building. In many cases, the price for a unit is lower when it’s sold this way than it would be if it were on the market as a resale unit.
On the flip side, assignment sales tend to be more complicated than traditional condo transactions. They often entail costs, risks, and legal minutiae that aren’t part of conventional resale and pre-construction purchases.
An agent with condo market expertise can help you weigh the pros and cons of including assignment sales in your condo search.
Can I renegotiate the terms of the agreement in place?
No. When you buy a condo on assignment, you’ll be expected to fulfill the terms and conditions that the original buyer agreed to (and take on any potential risks associated with them). For this reason, it’s very important that you protect your interests by working with an experienced real estate lawyer.
Fortunately, you may be able to negotiate with the seller (or “assignor”) regarding the specifics of your purchase with them. Assignors are often in the midst of a life transition, and they may be eager to make a deal and move on.
Which costs will I pay?
Along with the sum you’ve agreed to, you will almost certainly be expected to pay the assignor the amount they’ve put towards their deposit to date. Unless your contract specifies otherwise, you will be responsible for final closing costs including (but not limited to) land transfer taxes, development fees, Tarion fees, and HST if applicable.
As part of the assignor’s original agreement, development charges may be capped. If this is the case, you could wind up spending significantly less money—so it’s worth looking into.
How will closing work?
Closing on an assignment sale can be complicated for the assignee. You’ll have to go through the process twice: once when your deal is finalized with the assignor, and again when you close with the builder. During the first closing, you’ll pay the assignor their deposit and sometimes the profit. The profit portion could be renegotiated and paid on the second closing. During the second, you’ll pay the developer the remainder of what’s owed.
Don’t forget about the occupancy period! Once your unit is fit to be occupied, you will pay a sum that’s approximately equal to your monthly mortgage payments and condo fees until the building is registered.
What else should I know?
In addition to understanding the assignment process, you should be aware of the pros and cons that go along with buying a pre-construction condo. Your purchase will come with certain risks that the original buyer was willing to take on—such as delays to closing. On the flip side, there’s nothing quite like moving into a beautiful, brand new condo.
When handled correctly, condo assignment sales can be beneficial to buyers, sellers, and developers. Just remember that understanding the process is the key to success—which is why working with the right real estate and legal professionals is so important!
Interested in buying or selling a pre-construction condo? Let’s discuss it! Call or shoot me a text at 416-500-5360, or email me at [email protected].
March 22, 2024
Real Estate Definition: Assignment Sale
When a buyer enters into a purchase agreement for a pre-constructed or newly built property, they may find themselves in a situation where they no longer wish to proceed with the purchase. In such cases, the buyer can assign their rights and obligations under the agreement to a new buyer – and this is where an assignment sale comes in.
What is an Assignment Sale?
An assignment sale refers to a sales transaction in which the original buyer of a property (“assignor”) transfers their rights and obligations of the Agreement of Purchase and Sale to another buyer (“assignee”) before the original buyer takes possession of the property. The assignee then becomes responsible for completing the deal with the seller. Essentially, an assignment clause allows the buyer to sell the property before they move in. While assignment sales can occur with both homes and condos , they are more common among buyers of pre-construction condos.
Factors to Consider Before Entering an Assignment Sale
While assignment sales can be advantageous, it is crucial for both the original buyer and the new buyer to consider certain factors before entering into such transactions.
Developer’s Consent
Before proceeding with an assignment sale, you must obtain the developer’s consent. Some developers may have strict rules or restrictions, and failure to comply can lead to legal complications.
Assignment Fees
The assignor may charge an assignment fee to the new buyer for transferring their rights and obligations. This fee can vary depending on the market conditions and the specific terms of the Assignor-Assignee Agreement.
Legal Advice
Both parties should seek legal advice before entering into an assignment sale. This ensures that all parties understand their rights, obligations, and potential risks associated with the transaction.
How Does an Assignment Sale Work?
Before proceeding with an assignment sale, the original buyer must obtain the consent of the developer or builder. This step is crucial as some developers may have specific rules or restrictions regarding assignment sales. When the developer consents, the original buyer can look for a new buyer to take over the purchase agreement.
Once there’s a new buyer, both the original buyer and the new buyer (assignee) enter into an agreement known as the Assignor-Assignee Agreement. This agreement outlines the terms and conditions of the assignment sale, including the assignment fee, if any. Then, the developer will review the Assignor-Assignee agreement and may require additional documentation or fees.
Once the developer approves the assignment sale, the closing process begins. At this stage, the new buyer is responsible for completing the purchase, including paying any remaining balance to the developer.
Why Do Assignment Sales Happen?
One primary reason why assignment sales happen is a change of plans. People may decide to leave the area due to personal circumstances such as starting a family, getting married, or looking for job opportunities elsewhere. Additionally, some individuals may face financial challenges that prevent them from completing the purchase.
Alternatively, a common scenario involves investors who never intended to close on the property acquisition. A popular investment strategy is to purchase a property during its early release to take advantage of the emerging market and low pricing and sell it before incurring land transfer taxes, HST, or becoming tied to a mortgage.
Benefits of Assignment Sales
Assignment sales can offer several benefits to both the assignor and the assignee. Some of these benefits include:
Profit Potential
For the original buyer, an assignment sale provides an opportunity to make a profit without completing the purchase. If the market value has increased since the initial purchase agreement, the assignor can sell their rights at a higher price.
Opportunity for Early Ownership
The assignee can benefit from an assignment sale to gain early ownership of a pre-construction property. This can be particularly appealing for individuals looking to invest in real estate or those with specific requirements for a new home.
Flexibility
Assignment sales offer flexibility to both parties involved. The original buyer can exit the purchase agreement without incurring significant penalties, while the new buyer can secure a property without going through the entire pre-construction process.
How a Real Estate Agent Can Help You Navigate this Process
Assignment sales are a complicated process; working with an experienced real estate agent who can help you navigate and understand the ins and outs of this transaction is crucial. These professionals can not only assist you in marketing your assignment, but they can also overcome any limitations imposed by the builder. Moreover, agents have a vast network and can easily connect you with an interested buyer. Although assignment sales may seem daunting, having a skilled lawyer and an experienced realtor is a smart financial move!
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