What is an Assignment Sale?

What is an Assignment Sale?

Simply put, an assignment sale is the sale of a contract to purchase a pre-construction condominium suite. An assignment sale is typically used for a pre-construction condominium that has not yet been registered, so no one can take ownership of the unit. Only the contract is for sale.

You will be given an assignment clause/right in the form of a contract when you purchase a pre-construction condominium unit. You have the option of selling your assignment before the condominium is built.

  • Assignee/Buyer is not purchasing property from Assignor; rather, Assignee is purchasing the “right” to purchase property from a third party (usually a builder)
  • Assignor transfers its interest and rights in the Original Agreement with the Builder to the Assignor (or original seller)
  • The Assignee receives the Assignor’s interest in the original “deposit.”
  • Assignee “accepts” and agrees to carry out all of the Assignor’s obligations under the Original Agreement.

The buyer will receive ownership of the building once it has been constructed and registered with the city. Until then, it’s just a contract sale, but as you’ll see, there are numerous benefits to these types of sales for both the buyer and seller.

This article will teach you more about assignment sales, why they are used, how the transaction works, and how it can be transferred.

You’ll be able to tell if an assignment sale is right for you this way. Tall Property strives to educate our clients about the pre-construction market so that they can make more informed decisions about investing in their future.

 

What Is an Assignment Sale? Why Do These Kinds of Sales Happen?

There are numerous reasons why someone might want to sell the rights to their unit prior to construction. For example, someone may have purchased a suite that is three years away from completion but has recently had to relocate for work. This buyer may need to sell their agreement in order to purchase a home in their new city.
Another common reason is that a buyer began the purchase process while single, but married or became pregnant during the pre-construction period. They’ve recently discovered that the pre-construction one-bedroom suite they purchased is insufficient for a growing family.

When this happens, the “assignment clause” in the purchase agreement comes in handy. It allows the original buyer to transfer the contract to another person without incurring financial penalties.

These types of transactions are common and completely legal, but whether you are the buyer or seller, it is critical to work with both an experienced realtor and a lawyer who understands how to protect your interests.

These transactions are more complicated than traditional resales because they involve three parties: the developer, the assignor, and the assignee. It is a two-stage process that includes interim occupancy as well as final closing.

An Example of an Assignment Sale

This is only the fundamentals of an assignment agreement. More information about mortgage rules and other contract details can be found here. Continue reading to find out more! You can also contact us to speak with one of our agents. We love talking about condos! This is only a general overview; each arrangement is distinct, with its own set of rules, terms, and conditions.

We recommend that anyone considering buying or selling a pre-construction assignment consult with a real estate agent, lawyer, and tax accountant. Contacting an agent is critical because assignors may be required to pay a significant amount of tax on any profits received from the completed sale.

Most builders allow assignment sales. However, there are some rules that must be followed in the original purchase agreement. They are also more complicated than a regular sale because a mortgage cannot be obtained at the time of closing, but only after the building has been registered. Other considerations must be made, such as occupancy, reimbursement of the seller’s deposits, and so on.

  • In 2019, Roy Kennedy purchases a pre-construction condominium suite from XYZ Developments for $600,000 with a 10% down payment of $60,000. The project is scheduled to be finished in 2024.
  • In 2023, Roy learned that he would be transferred to a new city. He can’t afford a new home while still living in his pre-construction condo.
  • Fortunately for Roy, the assignment clause allows him to sell his unit’s contract before the building is finished and registered!
  • Roy has decided to sell his unit’s contract to Jace Olson. Because of market changes, he was able to sell the contract for $700,000.

Assignment Purchase: $700,000 Assignment Agreement
Roy Kennedy is the original purchaser (assignor).
Jace Olson New Purchaser (Assignee) XYZ Developments Vendor (Builder)
Roy Kennedy’s assignment purchase price to Jace Olson is $160,000, which is due immediately. This includes a $60,000 deposit plus a $100,000 profit. This payment’s amount and timeline are also negotiable.

  • Jace Olson will move into the unit during the occupancy period in 2024, when the building is finished and ready for interim occupancy. At this point, he will begin paying the developer’s occupancy fees. Until the building can be registered, these fees replace mortgage payments and condo fees.
  • Interim occupancy occurs when the city declares the property safe to live in. After the municipality conducts a final inspection, the building will be officially registered. Jace Olson can stay in his suite until the building is officially registered.
  • Assignment Specifics:

When the building is officially registered by the city, the developer and the new purchaser exchange official title. Jace Olson can finally register for a mortgage and begin making mortgage and condominium payments.
Jace Olson’s required funds to complete the sale to the builder = $540,000
Jace Olson now has full ownership of the property, just like any other homeowner. Any future resale of the property will be handled like any other real estate transaction.

Is It Worth It to Buying an Assignment?

Because fewer people look for these types of sales, assignment purchases can provide some of the best deals in the GTA condo market. Aside from fewer buyers, many real estate agents are unfamiliar with the structure of an assignment sale and will often skip advertising these listings. Even lawyers may be unfamiliar with the intricacies of an assignment sale.

The high demand in the resale market may force buyers into bidding wars, causing them to overpay for their suite. Purchasing a contract through assignment allows you to avoid excessive competition and often means paying much less than you would for a resale unit.

The assignment condo market can be advantageous to both the buyer and the seller. The seller can list their unit before the building is finished, and the buyer can save time and potentially thousands of dollars.

Another advantage of purchasing an assignment agreement is that you will receive a brand-new unit that is automatically covered by the Tarion Warranty Program for seven years. Not to mention that you’ll be able to move into the unit sooner rather than waiting the usual 3 to 4 years for the building to be completed!

Some of the Advantages for Buyers:

  • Options: When there aren’t enough listings on the market, you have more options.
  • Less Competition: Fewer people look at these types of listings, so there is less competition.
  • Peace of mind: Because there are fewer people looking at these sales, there is less of a chance of a bidding war. You can avoid bidding wars and spending more money than you can afford simply to outbid another buyer.
  • You Become A VIP: You will most likely inherit VIP benefits such as the seven-year Tarion Warranty Program and other builder incentives such as credits, upgrades, capped development charges, and much more.
  • More Options: Depending on the stage of construction, you may still be able to choose your own finishes, colours, and upgrades.
  • Negotiate: Sellers typically need to sell in order to release equity. This can provide you with price, deposit, and closing date leverage.
  • Suite that is brand new: Instead of waiting 2-3 years as in a typical pre-construction contract, you will receive your unit much sooner. Often, the occupancy date is only a few months away.
  • Taxes: You may be able to save money on taxes such as GST and HST.

We enjoy talking about the assignment sale market, so give us a call and we’ll find you a great deal.

Selling an Assignment

Owners who wanted to sell their pre-construction units had to wait months or years for the final closing date before putting their suite on the market. They could have already spent a significant amount of money on occupancy fees and closing costs by this point.

Although assignment sales are not a new strategy in Canada, when compared to other countries where condos have been around for much longer, the process is not always well understood by sellers, buyers, agents, lawyers, and even lenders. Sellers who have taken the time to learn about assignments have reaped the benefits by saving time and increasing their profits.

These transactions are becoming more common. Consider it similar to condo flipping. Sellers can transfer their property rights during or before interim occupancy to avoid paying hefty carrying and closing costs, allowing them to recoup their deposits.

Most builders permit assignment sales, though they frequently impose restrictions. Even if there are strict rules in place, there are options available to you.

Advantages for Sellers:

  • Reinvest: You can withdraw your equity and reinvest it in other projects.
  • NO Carrying costs: There are no carrying costs, so you can avoid paying monthly fees such as occupancy fees, which can sometimes last up to two years.
  • No Closing Costs: You are not required to obtain a mortgage or pay any other closing costs.
  • Market Playing: Profit from the hot condo market by selling now, before the suite is finished, and reinvesting in another project. It’s one of Toronto’s main economic drivers, and it’s not slowing down!

Contact our experts for personalized advise and real estate investment planning. Call 416-878-0749 or Register here.

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