Buying preconstruction is one of the hottest markets in real estate. Not only is it a more affordable option for first time home buyers but it also offers convenience in terms of its proximity to downtown workplaces. Plus, you don’t even have to worry about basic upkeep such as shoveling snow, mowing the lawn, etc.
However, buyers have to wait for a few years for the unit to be ready. Within this waiting period, there might be an unavoidable change of circumstances that will make buyers reconsider completing the purchase. Here’s where the condo assignment takes place.
Let’s learn more about the condo assignment as we answer some of the frequently asked questions.
What is a condo assignment?
Upon buying a pre-construction condo, the buyer will sign an agreement with the builder which is a binding contract to guarantee that the buyer will complete the purchase of the unit until the final closing.
Condo assignment is the passing of that contract or purchase agreement from the original buyer to a new buyer. It is the selling of a contract or agreement to purchase a property. The original buyer cannot sell the actual unit since they don’t own it yet.
Why do assignment sales happen?
If a buyer no longer wants to proceed to the final purchase of the unit for some reason, this will be a breach of contract with the builder and will incur penalties. Since the buyer doesn’t own the unit yet because it is still under the builder’s name, the buyer can sell the contract or agreement to a person who is interested and who can close the purchase.
Here are some common reasons why a buyer wants to assign or sell their purchase agreement:
- Getting a new job
- Getting married
- Getting divorced
- Financial difficulties
How does it work?
Condo assignment is possible if there is no restriction for assignment in the purchase agreement. The original buyer will assign the contract to a new buyer. The original buyer becomes the assignor while the new buyer becomes the assignee. It will be the assignee who will complete the purchase with the builder. Condo assignment is only possible from the time you receive keys from the builder up to the closing date. This is what we call the interim occupancy period.
Is this kind of sale limited only to preconstruction condos?
No, assignments sales are possible for new preconstruction condos or houses. Make sure your agreement specifically provides for assignment. You cannot assign homes bought from the resale market.
What are the advantages?
For assignee: Condo assignment is a great opportunity to purchase a condo in a building where all units are sold out. Also, the purchase price is cheaper before closing costs compared to when the building is registered and units are offered in the resale market.
For assignor: The original buyer or the assignor receives all the deposits paid to the builder along with the profit from the assignee.
What are the risks?
For assignee: The assignee or new buyer cannot renegotiate the original purchase agreement with the builder. The price and other terms formerly agreed by the original buyer will be passed down to the new buyer.
For assignor: Sellers find it difficult to sell their purchase agreement since most builders don’t allow advertisement and this restriction may be specifically included in the contract.
To market their condo assignment, buyers can get an agent who specializes in assignment sales and who knows potential buyers.
What are the expected costs?
For assignee: The land transfer tax is paid by the assignee or the new buyer. This tax is based on the purchase price. For buyers purchasing in Toronto, they have additional city land transfer tax.
The new buyer will also take over the payment of the balance owed to the builder along with the closing costs. This may be done through mortgage loans.
For assignor: The profit from an assignment sale is taxable. It is highly recommended to consult a tax professional for taxation matters. You can also discuss with them other possible costs such as HST and legal fees.
If the builder allows assignment sale, there might be an assignment fee provision in the agreement of purchase and sale.
Condo assignment is different from the resale market in the sense that there are additional paper works and fees that come with it. Still, both assignor and assignee can benefit well from such an arrangement.
If you have any questions or need help buying or selling condo assignment, contact me at 647-834-9928 or send an email to email@example.com