Assignment sales 101

Assignment sales 101

It's interesting times for the Toronto condo market these days, and the market for pre-construction condos is no exception. Buyers – both those who had planned to live in their completed units as well as investors hoping to rent them out – are taking stock of the softening condo and rental landscape and unloading their unfinished condos ASAP. As a result, assignment sales are up dramatically, offering unique opportunities for the right buyers.

What is an assignment sale, exactly?

An assignment is when the original buyer of a pre-construction property (who signed a contract with the builder) sells their contract to someone else before the purchase closes. Essentially, the buyer takes over for the seller in the contract and pays the deposit plus appreciated value/profit.

Assignments happen for a number of reasons. Life changes are a big motivator – a lot can happen in the three to four (or more) years it takes to get from initial deposit to ownership. People decide to leave Toronto. They have babies, they get married, they get divorced. They face financial difficulties that means they can’t close. Or they’re investors who were never going to close in the first place: they planned to let it appreciate, then sell it before getting locked into a mortgage and having to shell out transfer taxes and HST.

The pros and cons

This type of transaction comes with a very specific set of pros and cons for both the buyer and the seller. Here’s a quick rundown:

Buyer pros

  • You can own a brand new unit without waiting years for it to be finished – buying from a builder usually involves a much longer wait.

  • It’s usually cheaper than resale because sellers can't market assignments on MLS. Fewer buyers know about them and there's less competition. The complexity of the transactions and large amount of money needed upfront shrinks the potential buyer pool even further.

  • You don't have to worry about a project being cancelled and leaving you in the lurch: most builders don’t allow assignments until the project is almost done.

Buyer cons

  • You need to have a lot of cash up front, including all deposits that have been paid to the builder, any profits that come from appreciation of the unit over time, agent commission, municipal charges, Tarion warranty, closing costs and the assignment fee, which can vary from a few hundred dollars to a few thousand (though some builders waive it as a purchase incentive).

  • An assignment sale is a lot more complicated than a resale purchase. You need a real estate lawyer experienced in assignments to ensure everything is done right (which can be expensive), and a realtor who really understands the assignment market.

Seller pros

  • If you’re an investor, you can cash in on the profits before the project is completed. Getting cash out earlier means you can reinvest faster.

  • If your life situation changes, it allows you to walk away without penalties (and probably some profit).

  • You don’t have to deal with closing, occupancy, or tenants.

  • You avoid paying land transfer taxes, HST and a whole lot of other closing costs.

Seller cons

  • It’s a lot harder to sell an assignment than a resale: most builders don’t allow them to be listed on MLS or marketed, so the pool of buyers is much smaller. As a result, assignments typically take longer to sell and sell for less than resale and pre-construction.

  • There are limits around when you can sell: a certain percentage of the development has to be sold before a developer will allow it.

  • Not all builders allow assignments.

  • Builders have a lot of control and can refuse the sale.

  • The builder could cancel incentives like capping of development charges and design/upgrade credits, which increases the selling price and cuts into profit.

  • Greater complexity means higher legal fees.

Wait, no marketing allowed? How do people find out about assignments?

One of the biggest challenges around assignment, for both buyers and sellers, is the fact that most builders won't allow them to appear on MLS or be marketed in any sort of traditional way. Realtors who are experienced with assignments are an important resource for both buyers and sellers in an assignment scenario. They can leverage their networks to spread the word about available units, find interested buyers and connect the two.

“Agents can source assignments through a mixture of Kijiji ads, personal networks and semi-private networks like Facebook groups who screen their members,” says Konrad Gloge, Sales Representative. “Builders have the power here: if you list an assignment on MLS and they haven't agreed to it, you’ll be in breach of contract and you could lose your deposit, which is a pretty compelling incentive not to list. That’s why working with a well-connected agent is a must.”

Assignments can be daunting, but with a good lawyer and a knowledgeable realtor, they can be a great financial move, helping you profit on your purchase before it closes or get into a great new place faster.

Got questions? Connect with a Condo Pro today.

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