Not knowing exactly what is assignment sale could lead to many problems down the line such as contract disagreements and disappointment with the finished unit. Luckily, our team is here to make sure you fully understand what an assignment sale is so you have all the information to make the best decision for your purchase.
What is a Condo Assignment Sale?
To put it in simple terms, an assignment sale isn’t exactly the sale of the condo itself, but the assignment of the contract. We usually see assignments on a pre-construction property and freehold homes. There are certain benefits and risks to buying assignment sales, and we are going to look at both sides in depth.
When Does It Occur
Condo assignment sales occur before the pre-construction of the condo or another property type is completed or before its final closing date. An assignment sale needs to be completed before the final closing of the property between the original purchaser and the builder.
As an original buyer, you must make sure you understand how an assignment sale works and check your original purchase agreement to see if the developer approves of assignment sales. Most builders will have a clause in the agreement of purchase that will stipulate this and marketing restrictions in place.
Reason for a Condo Assignment Sale
Assignment sales can happen with pre-construction condo units and most other types of property. All you need to make sure of is whether it’s allowed in the original agreement.
Why do these kinds of sales happen? The most common reason is the original buyer’s circumstances might change and present a reason to list their condo for assignment sale transactions.
Since there is a long lag time between the purchasing of the contract and the interim occupancy period, perhaps there are financial reasons such as a job loss or an emergency. Perhaps they couldn’t wait for the condo to be built and got reassigned to another location for their jobs before the closing date.
Perhaps they will welcome a new member of their family soon and the condo just isn’t big enough for everyone. Whatever the reason, it isn’t always negative. An assignment deal is legal, so don’t worry about that. But it’s important to work with professionals, such as an experienced realtor, to ensure the interest of both parties.
One other less common reason for original buyers to look for new buyers or potential buyers is condo flipping. In this case, the buyer had no intention of closing the original purchase and sale deal and had their eye on resale transactions from the start.
This type of original buyer will wait until they see an appreciation of the pre-construction unit and list it for assignment sales.
Negotiations
The negotiations are key to successful condo assignment sales, and because the new buyer is taking on the original contract, you would need to make sure you understand what is outlined in the assignment contract, from the final closing costs, the assignment closing date, to the land transfer taxes [1] and clarity for each assignment clause.
The new purchaser will need to match the original buyer’s total deposit, but because most original buyers will want to make some money from the pre-construction unit, the price is something you can discuss.
It’s suggested to have an experienced real estate agent, tax accountant and property lawyer in your employ for final sale price negotiations and tax advice. Having them by your side will ensure a smooth transaction.
Closing
When it comes to closing a condo assignments sale, there are two steps the new buyer must take. The first is the closing agreement between the original buyer and the next one is with the builder or developer before the interim occupancy date. In other words, there are two agreement of purchase contracts you have to familiarize yourself with.
Here’s a breakdown of closing into simpler terms. The first one, the one between the first buyer and the new buyer includes their original deposit. The second agreement is the one between the new buyer and the builder, which consists of the rest of the fees plus land transfer taxes. When these monetary transactions are done, the new buyer becomes the title owner.
At this point, the new buyer enters into a new interim occupancy period, and this can take anywhere from a few months to even a few years. This is the period when the buyer can move into the property but the new unit is not yet ready to be registered to the city.
During the interim occupancy period, all the fees the buyer pays including the mortgage, any extra condo fees, and taxes will go to the builder.
Example of an Assignment Sale
To make things easier to understand, here’s clearer breakdown of an assignment sale complete with numbers.
Jordan has his eye set on new pre-construction sales from White Stone Developments valued at $500,000. Jordan is responsible for a 20% deposit for the condo that is set to complete in five years. 20% of $500,000 is $100,000.
Fast forward to a year or so later, Jordan gets the good news that his wife is pregnant with a new baby boy. The pre-construction condo is a one-bedroom and isn’t large enough for a family of 3.
Thankfully, Jordan can invoke the assignment clause in his contract and sell the contract for the pre-construction unit. He finds a buyer, Rachel, who is willing to shell out $600,000 for the contracts. Rachel will then be responsible for the 20% down ($120,000) plus profits to be paid to Jordan (the payment plan can be negotiated) and any assignment fees.
After this, Jordan is free of the contract and Rachel will continue with the agreed-upon terms with the builder from the original agreement of purchase and sale.
Costs of Condo Assignment Sales
Is selling an assignment better than a regular real estate transaction? The only way to know is to understand the cost of listing assignment sales. You will need to pay a fee to the builder known as builder assignment fees and another cost on top of the real estate commission.
The second fee is for the commission to locate a potential buyer for you. You can bypass this cost if you find a buyer yourself. Since it is in your best interest to hire a certified accountant or property lawyer to look over the purchase agreement and other contracts, you can also expect to pay higher legal fees for these professionals.
Now that you know what is a condo assignment sale, you can therefore make an informed decision. Our experts get a lot of questions about new condos and whether it’s better to wait or to list them for assignments right away.
An assignment is better if you’re looking to get your money back sooner rather than later. Assignments will also see that the assignee pays the land transfer taxes and other taxes. Sometimes you can even make a profit on the market value if condo assignments are listed during a real estate boom.
It all sounds great, but selling condo assignments also has its drawbacks. For example, experienced real estate agents know it’s more difficult to sell an assignment property due to a much smaller buyer pool. This could mean a long wait time before you see the return of your total down payment and the closing fees.
Most of the time, there is some sort of marketing limitations when it comes to selling and buying an assignment. These restrictions might also hurt your chances of finding a potential buyer.
Our team also mentioned that assignment sales are much more complex than regular transactions, so you will require experienced professionals that will add to the cost.
Pros and Cons of Condo Assignment Sales for Buyers
Now our team will take a deeper look at the pros and cons of condo assignments for different parties. For the buyers, you can expect to see advantages such as more options when choices are low. Since assignments are more complicated, you will have less competition on these units and reduce the chances of a bidding war.
Since some assignment sales are listed due to sudden changes in the seller’s life, the buyer has more leverage to negotiate items such as the assignment fee, occupancy costs, and even the purchase price of the title.
If you are looking for a home sooner rather than later, assignment units have closer occupancy dates, unlike regular sales. There is a possibility to save on taxes and you may still have a chance to choose your own colors and finishes in the unit if you close early on.
As a buyer, you will inherit everything that comes with the contract such as capped development charges and other VIP incentives like upgrades and credit.
A very big con of entering an assignment sale agreement compared to regular pre-construction sales is the inheriting of the original contract. There is little you can do to negotiate the terms stipulated in the original contract with the buyer.
Pros and Cons of Condo Assignment Sales for Sellers
The pros for assignment sellers are a shorter list compared to the ones for buyers. First of all, sellers can get their money faster and put that amount to good use such as reinvestment. Sellers will not be responsible for carrying costs such as occupancy fees or go ahead with the mortgage payments or other closing fees.
At times, the seller can also play the market and list the unit for higher than the original purchase price and make a profit. However, more often than not, sellers will have a harder time seeing offers due to marketing restrictions and a smaller buyer pool.
Since the process for assignments is also much more intricate, it will be difficult to find a real estate professional out there that is familiar with this type of sale. For this reason, it will also take longer and require more research on your end.
FAQ
How does an assignment sale work?
An assignment sale works when the original buyer lists their contract for sale before they officially take possession of the unit. In essence, it’s the contract that’s for sale and not the unit. The assignee, or new buyer, is the one who takes over the contract and enters into an agreement with the builder.
Conclusion
Now that you know what is a condo assignment sale, you can decide if it’s the route you want to take as a buyer or seller. There are more advantages from a buyer’s standpoint, but there are undeniable pros for sellers such as getting your money back faster and avoiding taxes and closing costs. At times, sellers can even make a profit from assignments.
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