What’s an assignment?
An assignment is when a Seller sells their interest in a property before they take possession – in other words, they sell the contract they have with the Builder to a new purchaser. When a Seller assigns a property, they aren’t actually selling the property (because they don’t own it yet) – they are selling their promise to purchase it, along with the rights and obligations of their Agreement of Purchase and Sale contract. The Buyer of an assignment is essentially stepping into the shoes of the original purchaser.
The original purchaser is considered to be the Assignor; the new Buyer is the Assignee. The Assignee is the one who will complete the final sale with the Builder.
Why would someone want to assign a condo?
Often with pre-construction sales, there’s a long time lag between when the original contract is entered into, when the Buyer can move in (the interim occupancy period) and the final closing. It’s not uncommon for a Buyer’s circumstances to change during that time…new job out of the city, new husband or wife, new set of twins, etc. What worked for a Buyer’s lifestyle 4 years ago doesn’t always work come closing time.
Another common reason why people want to assign a contract is financial. Sometimes, the original purchaser doesn’t have the funds or can’t get the financing to complete the sale, and it’s cheaper to assign the contract to a new purchaser, than it is to renege on the sale.
Lastly, assignment sales are also common with speculative investors who buy pre-construction properties with no intention of closing on them. In these cases, the investors are banking on quick price appreciation and are eager to lock in a profit now, vs. waiting for the original closing date.
What is “LIFT” for assignment sale?
“Lift” is the increase in value of the assigning property from the contract date. For example: In 2016, the condo is $500,000 purchase directly from the developer. In 2017, the condo market value has gone up and value at $600,000. Therefore, the lift of the condo will be $100,000.
What is your cost to purchase an assignment sale?
Initial deposit that was made to the developer + Lift (increase in value of the property). As the property is not completed to apply for mortgage, the total cost often need to be pay in full either by cash or other loans.
Builder Approval and Fees
Your Agreement of Purchase & Sale stipulated your rights to assign the contract. While most builders allow assignments, there is usually an assignment fee that must be paid to the Builder (always refer to the disclosure statement for cost and procedure).
There may be additional requirements as well, the most common being that the Builder has to approve the assignment.
Most pre-construction Agreements of Purchase & Sale from Builders do not allow the marketing of an assignment on MLS or other online advertisement. This makes selling an assignment extremely difficult. Buyers guilty of marketing an assignment against the rules can be considered to have breached the Agreement, and the Builder can cancel your contract and keep your deposit.
There are REALTORS who specialize in assignment sales and have a database of potential Buyers and investors looking for assignments. If you want to be connected with an agent who knows the ins and outs of assignment sales, get in touch.
What are the benefits to the Assignee (new buyer)?
- Faster occupancy as the unit is usually near or at occupancy and often vacant. Can be 3-5 years sooner than buying new (pre-construction) from the Builder. 95% of pre-construction has substantial delays in reaching Occupancy and Final Closing dates.
- Enjoy a brand new unit – often never occupied/never rented. Fresh and clean (no pet, smoking, cooking smells, bad decor).
- All new warranties (manufacturer’s 1-year on appliances and 1 & 5 & 7-year Tarion).
- The PDI (pre-delivery inspection) has usually been completed. In some cases, you may get to do this.
- All the upgrades and options are decided. In some case, you may get to do this.
- Much smaller deposit for a much shorter time than when buying new from the Builder.
- Maybe an opportunity to see the unit and building rather than buying from pictures (only applies if interim occupancy has started).
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