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 pre-construction condos and freehold homes. There are certain benefits and risks to buying a condo on assignment, and we are going to look at both sides in depth.
A pre-construction condo is where the builder puts units up for sale when the building itself hasn’t been built yet. You need to be able to conceptualize the appearance of the unit and the layout on your own. You would need to pay a deposit first, usually at about 20% at the least. The rest of the payment and sometimes even the deposit itself can be paid out over a period of time.
Why do these kinds of sales happen? Well, sometimes the buyer has personal reasons for listing their condo on sale for assignment. 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.
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. These transactions are legal, so don’t worry about that, but it’s important to work with professionals to ensure the interest of both parties.
Let’s give you a clearer breakdown of an assignment sale complete with numbers.
Jordan has his eye set on a new pre-construction condo from White Stone Developments valued at $500,000. Jordan is responsible for a 20% down payment for the condo that is set to complete in 2025. 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 condo. 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). 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.
One big reason to buy assignments is that they can actually end up giving you better deals. Since they aren’t allowed to be listed, there will be much fewer buyers, giving you leverage to negotiate on the price of the contract with the seller.
In some cases, you may have less of a wait time for your completed condo than if you were buying a brand new selling pre-construction. Some areas in Toronto have little supply and therefore sometimes considering an assignment sale is a hidden option in areas that you cannot locate your desired specifics.
Below is a quick summarization of all the benefits and risks an assignment condo has for the buyers.
Fewer buyers competing with you
The room to negotiate the price
Oftentimes you can find great deals
Access off-market properties that may work better for you than listed move-in condos/homes
You can have built-in equity by purchasing below market value
The agreement and terms of the contract cannot change. Whatever the original buyer and the builder agreed on is what you assume. We always have our deals 5 days conditional on due diligence. During this time, we provide you with all the resources you require to make a clear purchase decision.
Assignment sale is a strategy that may be unfamiliar to some. If you don’t have the right professionals to ensure your interest, you could find yourself in a situation you didn’t account for. Buying an assignment can benefit both the seller and buyer. Saving time and maximizing profits are just two of the rewards they can reap.
Be able to cash out prior to closing, getting your deposits and some if not all profits back
You will not need to pay any closing costs such as development levies, HST, Land Transfer Tax, and more.
Gives you more options in an emergency situation if you need to pull out your funds or release your obligation to the contract.
When you purchase from the builder, 99% of the time it states that assignments cannot be listed online. This means that it’s not like a house that you can list on MLS, it can only be sold through word of mouth. That is why it’s really important you consider working with a Realtor® that understands how assignments work and have the resources and network to represent and sell your unit in the best way possible.
Assignments happen more so with pre-construction condos, but they can happen with any type of property.
Don’t worry, assignments are completely legal. However, the builder needs to agree and this is crucial to the assignment deal. To make sure whether or not the property can be sold on assignment, you should double-check the contract. We help you with this.
Assignment sales are gaining traction because they could benefit both parties greatly and can help the seller in a pinch.
Other than the closing fees, the buyer will also be responsible for provincial and municipal land transfer taxes, GST and HST, and municipal levies.
Assignment buyers and sellers need to do their due diligence to ensure their interests. Hiring the right professionals no matter which side you are on can help give you the best advice. These professionals include real estate brokers, accountants, and lawyers for contracts .
There is a very crucial difference between the two. When you buy a resale property, you are buying the property itself, whereas in an assignment deal, what you are buying is the CONTRACT for the property. Practically and for peace of mind, a resale is more assured as you can feel and physically get what you’re getting. There are a lot of ups to purchasing an assignment from a value perspective as well. It first begins by talking to our team to match you with the best opportunities to understand the full picture of things.
Assignments have room to negotiate for the price of the contract but you are pretty much locked in with the same terms as the original Agreement which was established by the original buyer and the builder.
So which one is better? It really depends on your needs. Assignments are great and can get you a good deal if you like the terms of the contract. If you are someone who needs or assurance that you are purchasing a tangible product, then resale properties are the way to go. Some areas have low supply and therefore you might also find a better option for going this route.