Buying condos on assignment is becoming the norm in the real estate business. Investors use this strategy to purchase a condo cheaply and sell before closing to maximize profit. Understanding what a condo assignment is can be difficult, especially for newbies in the niche. Our team will discuss condo assignments and what you need to know before diving in to your next investment.
What Is a Condo on Assignment Sale?
A condo on assignment sale is a written document issued to the purchaser of a pre-construction condo unit from the builder or an investor intending to sell. This agreement indicates that since the building hasn’t been officially registered, no one can take possession of the condo unit. However, you are allowed to sell the agreement to an interested buyer before the building is fully registered.
You will only get full ownership of the building after the final closing date – the period when the property title will be transferred to you. Once the property has become registered, you can sell the property and the title. It’s after the closing date that you will begin your mortgage payment.
Remember, the condo unit isn’t officially yours, even after making your down payment. You will only get a condo assignment sale as proof of your down payment and not the property’s title until after the closing date.
Why Purchase a Condo on Assignment?
There are reasons why buying condos on assignment is a familiar strategy investors and realtors use these days. If you already bought a pre-construction condo, you can maximize profit before closing and registration by selling the contract to another buyer. This is called “flipping.”
If you also have to relocate or out of cash, you can sell the contract to an interested buyer and get your money. Here, the agreement can protect you from accruing further costs.
Another reason to purchase a condo on assignment is that you’ll be buying at a price less than the market value when it’s completed.
Important Factors to Remember
When buying a condo on assignment, you need to keep the following factors in mind.
Taxes
You will be liable to pay taxes, such as Land Transfer Tax and other legal fees after the final closing date. Our experts recommend that you employ the services of a tax advisor for proper guidance.
Down Payment
Buying a condo on assignment sale demands that the builder collects a down payment from you. The deposit structure varies from builder to builder and the current phase of the building construction, but the typical range is between 15% – 30% of the total price of the building.
Builder
The builder must approve all the transactions regarding assignment sales. Some builders may not approve until the date of assignment sale is near the final closing date to avoid any confusion on whose name the property will be registered to.
Mortgage
You are mandated to provide Proof of Sufficient Funds to show that you can pay for the purchase before the builder can issue the contract. The remaining amount after the initial down payment is paid in the form of a mortgage.
HST Rebate
The builder automatically assumes that you are using your condo as your primary residence after registration. Therefore, you become obligated to assign the HST Rebate entitlement to the builder.
Real Estate Broker
You need the help of a professional and seasoned real estate broker to help you with the transaction and ensure that it goes smoothly. This is because the paperwork involved is relatively complicated, and many agents or real estate brokers may not fully understand how condo on assignment sale works.
Closing an Assignment Sale
When buying a condo on assignment sale, you will be responsible for closing costs once the builder registers the building. These costs include Land Transfer Tax, Utility Connection Fees, Development Charges, etc. [1] However, you are exempted from HST if you plan on using your condo as your primary residence.
When purchasing a condo on assignment sale, you need to take note of the following:
- Assignment closing date (when the transaction is completed)
- Occupancy closing date (the first date when the builder hands over the keys to the purchaser)
- Final closing date (when the title of the property is transferred to you)
FAQ
How do you buy an assignment for a condo?
To buy an assignment for a condo, you must be ready to purchase one of the pre-construction condo units from the builder. Afterward, you can request an assignment from the builder, showing that you own one of the units.
How does a condo assignment work?
A condo assignment transfers partial ownership of the building from the builder to the buyer. When buyers decide to purchase a pre-construction condo unit, they agree with the builder, signifying partial ownership.
Conclusion
When buying condos on assignment, it’s vital that you go through all these factors, as explained by our real estate experts, to avoid any complications, especially during the closing dates. An error could jeopardize your chances of buying a pre-construction condo, so take your time while going through the transaction.
