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Six Tips for Buying Condos on Assignment Sales

During your search for condos in Toronto, you might come across something called an assignment sale. Condo Pro Abby Yen has offered up some helpful tips about how to navigate an assignment sale, but first let’s explain what it means to buy a condo on assignment.

When purchasing a pre-construction condo, the buyer receives ownership of the Agreement to Purchase and Sale contract, which acts as a hold on the condo until completion. But before the condo is completed, the original buyer (the assignor) can sell the ownership of the Agreement to Purchase and Sale contract to someone else. When a buyer chooses to sell this ownership contract, it is called an “assignment sale.”

 

Six Tips You Should Know About Assignment Sales

 

1. Assignment Sale is Different from a Resale Purchase

 

Purchasing an assignment sale condo, in essence, is purchasing the ownership of the Agreement of Purchase and Sale contract from the original buyer. Your title will not go on the property until the Final Closing Date.

 

2. Be Sure You Have Enough for Down Payment

 

Making an assignment sale purchase usually involves a larger amount of upfront cash compared to a resale purchase. This is because now you are responsible for two things at the assignment closing:

a)    The down payment paid to the builder by the original buyer which is usually 20% of the original purchase price.

b)   The difference between the new purchase price (the current asking price) and the original purchase price from the builder.

Therefore, if you are looking to pay less than 20% down payment for your purchase, assignment sale home may not be the best choice for you.

Here’s an example: An assignment sale with current asking price of $300k, the original contract purchase price was $250k, and a 20% down payment paid to builder from the original home buyer.

In this scenario, down payment required upon this assignment closing will be $100k. Calculation: ($300K assignment asking price – $250k original contract purchase price) + ($250k original contract purchase price x 20% down payment paid to builder) = $100k.

 

3. Builder’s Consent is Required

 

Most assignment sales would require the builder’s consent before you can complete your assignment sale transaction. In some cases, builders may not grant the consent if the assignment sale closing date is too close to the final closing date. Since the final closing date is the point at which ownership is transferred from the builder to each individual condo owner, the builder (and their lawyers) will want the transaction of assignment ownership to be secured well in advance so that they’ll know the final, correct name for the contract.

 

4. Mortgage & Mortgage Approval

 

Following on the last tip, for the builder to grant a Builder’s Consent you will need to provide a confirmation for Mortgage Pre-approval or Proof of Sufficient Funds to show that you can afford to complete the sale. Remember, only the original contract purchase price minus the down payment paid to the builder is eligible to apply for a mortgage.

Example: Adopting the same scenario from above, $250k original contract purchase price – ($250k x 20% down payment paid to builder) = $200k is eligible to apply for a mortgage.

 

5. Understanding the Closing Date

 

Buying an assignment sale condo is similar to purchasing a pre-construction project, but there are a few different closing dates that you should understand. In general, an assignment closing date could be before or after the Occupancy Closing date.

a)   Assignment closing date: This is the date that your assignment sale transaction is completed with the original home buyer (assignor).

b)    Occupancy closing date: The occupancy closing date is the first closing date that the home buyer obtains the property key from the builder and lawyer. At this point, the home buyer is still paying occupancy fees to the builder and not yet paying into their mortgage.

c)    Final closing date: This is the final date that the property title will change to the buyer’s name and the buyer is now paying into their mortgage.

 

6. Find Great Support to Achieve Great Result

 

Purchasing an assignment sale condo can be very complicated. If you’re interested in pursuing an opportunity in this type of transaction, we highly recommend you work with an experienced Condo Pro.

  • birdonthewire2

    How does GST/HST factor into assignment sale condos in Toronto? Are assignment sales still considered to be “new”, even though this is kind of a resale, and therefore subject to tax?

  • Hey, @ljdann:disqus,

    Thanks for the great question! The short answer is yes, GST/HST applies to condo assignment sales, but it depends on the nature of the sale. According to the CRA, if “the sale is considered to be made in the course of a business or adventure or concern in the nature of trade,” then the “seller” (or assignor) is technically considered a builder and is responsible for paying the GST/HST. If, however, the assignor had intended to use the condo as a primary residence, then the GST/HST is transferred to the new buyer (or assignee). But it always depends on the nature of the sale.

    Whether buying or selling, we would recommend that you get your Condo Pro to review this aspect of your contract and, if necessary, include a clause to cover your end of the deal against the GST/HST.

    We hope that answers your question!

    – Condos.ca Team

    • birdonthewire2

      Thanks very much for the reply. It’s more complicated than I realized. The question that occurs to me after reading your answer is what regulations are in place to prevent an assignment seller claiming that he/she intended to use it as a residence….and thereby passing the GST/HST cost along to the buyer…….when in fact the seller’s intention from the start was speculation or “adventure”?

  • Banana888

    Perhaps you can expand on closing costs for assignments. It would appeared that the buyer has to pay development charges, Tarion etc that can add up to over $10,000. What about assignment fees? How about HST if I am buying it to be used as a rental property.? Please explain.

  • Hey, @banana888:disqus ,

    As @ljdann:disqus pointed out, assignment sales can be complicated, which is the main reason why we wanted to write about the topic, but also why we recommend working closely with your Condo Pro. While there are regulations in place, the GST/HST costs as well as assignment fees can differ depending on the details of the development and the nature of the sale. You might want to read over the CRA’s Info Sheet (link below), as well as contact your Condo Pro with exact questions and concerns.

    Hope that helps!

    -Condos.ca Team

    http://www.cra-arc.gc.ca/E/pub/gi/gi-120/gi-120-e.pdf

  • birdonthewire2

    Many thanks for all the great information on this topic. Much appreciated!