Assignment Sale

An Assignment Sale In The Pre-Construction Market

A contract to buy a pre-construction condo suite is sold in an assignment sale, or it is “assigned,” to another party. Since the pre-construction condominium has not yet been registered, an assignment sale is typically used to prevent anyone from purchasing the actual unit. The contract itself cannot be sold.

You will receive an assignment clause or right in the form of a contract when you buy a pre-construction condominium unit. Before the condominium is even finished, you can decide to sell your assignment.

No property is being purchased by Assignee/Buyer from Assignor – A third party is selling the assignee the “right” to purchase their property (usually a builder)
In the Original Agreement with the Builder, Assignor transfers its rights and interests (or original seller)
Assignee “assumes” and undertakes to carry out all of the Assignor’s responsibilities under the Initial Agreement as the Assignor’s interest in the original “deposit” is assigned by the Assignor to the Assignee.

The ownership will be given to the buyer once the building has been constructed and registered by the city. Until, it is merely the sale of a contract, but as you shall see, both the buyer and the seller benefit greatly from these deals.

Learn more about assignment sales in this article, including their uses, how they work, and how they may be transferred.

This will enable you to decide if an assignment sale is the best option for you.

What Is An Assignment Sale? Why Do These Kinds Of Sales Happen?

Assignment sale is selling your unit’s rights before it is constructed. There are a variety of reasons why someone might sale an assignment. For instance, someone might have purchased a suite that won’t be finished for three years, but they recently had to move for work. To buy a home in their new city, the buyer might have to sell their contract.

Another typical explanation is that a buyer started the purchasing process while still single but got married or learned they were expecting a child during the pre-construction phase. They have recently learned that the one-bedroom pre-construction suite they purchased is insufficient for a growing family.

When this occurs, the “assignment clause” in the purchase agreement is essential. It enables the first purchaser to transfer the contract to another party without incurring financial penalties.

However, whether you are the buyer or the seller, it’s crucial to engage with both an experienced realtor and lawyer who know how to safeguard your interests. These types of transactions are popular and completely legal.

The developer, the assignor, and the assignee are all parties to these arrangements, which are more complicated than a typical resale. Interim occupancy and the final closing are both parts of the two-stage procedure.

An Example Of An Assignment Sale

A simple assignment agreement would only include this. Additional information is provided regarding the mortgage rules and other contract specifics. This is just an overview; each arrangement is distinct and has its own set of guidelines, terms, and conditions.

We suggest that anyone considering buying or selling a pre-construction assignment consult with a real estate agent, real estate lawyer, and tax accountant. Making contact with a lawyer is crucial since assignors can be responsible for paying a sizable tax on any gains they obtained from the completed transaction.

A pre-construction condominium suite was purchased by John Smith from ABC Developments in 2017 for $400,000 with a total down payment of 20%, or $80,000. In 2022, the project is expected to be finished.

John learned that he would be transferred to a different city in 2021. He's holding onto his condo under construction since he can't afford to buy a new house.

Fortunately for John, the assignment clause permits him to sell his unit's contract before the building is finished and registered!

John has decided to sell his unit's contract to Jane Doe. He was able to sell the contract for $500,000 as a result of market changes. Assignment Purchase: Assignment Agreement: $500,000 Original Purchaser (Assignor) = John Smith New Purchaser (Assignee) = Jane Doe Vendor (Builder) = ABC Developments John Smith's assignment purchase price to Jane Doe is $180,000, which is due immediately. The deposit is $80,000, and the profit is $100,000. This payment's amount and timing are also negotiable.

Jane Doe will occupy the unit for the tenancy period beginning in 2022 when the building is finished and available for interim occupancy. She will now start paying the developer occupancy fees. Until the building can be registered, these fees serve as a substitute for condo and mortgage payments. When a property is declared safe to reside in by the city, interim occupancy occurs. After the municipality conducts a final inspection, the building will be legally registered. Jane Doe can stay in her suite until the building is formally registered.

Assignment Specifics: When the building is legally registered by the city, the developer and the new purchaser transfer official title. Finally, Jane Doe can sign a mortgage document and begin making mortgage and condo payments. Jane Doe's required funds to finalize the transaction to the builder = $320,000 As a current owner, Jane Doe is entitled to all property rights. Any resale of the property in the future will be treated like any other real estate deal.

Is It Worth It to Buy an Assignment?

Because fewer individuals seek out these types of transactions, assignment acquisitions can provide some of the finest discounts in the GTA condo market. In addition to having fewer purchasers, many real estate agents are unfamiliar with the assignment sale’s format and frequently choose not to market these listings. Even lawyers might not be familiar with all the details of an assignment sale.

Due to the high demand in the resale market, buyers may be forced into competitive bidding situations where they may overpay for their suite. When you purchase a contract through assignment, you have the chance to avoid intense competition and frequently pay significantly less than you would for a resale unit.

Both the buyer and the seller may benefit from the assignment condo market. The buyer can save time and possibly thousands of dollars by not having to wait for the building to be finished before listing their property.

Another benefit of purchasing an assignment agreement is that you will receive a brand-new unit that is already covered by the Tarion Warranty Program, which has a seven-year duration. Not to mention that you won’t have to wait the customary 3 to 4 years for the building to be finished and will probably be able to move into the unit sooner!

Here Are a Few Benefits For Buyers to Review:

Options: When there aren’t enough listings on the market, there are more options.
Less competition: These kinds of listings are looked at by fewer people.
Peace of Mind: There is less of a chance for a bidding battle when fewer people are seeing these sales. Bidding wars and spending more money than you can afford only to outbid another buyer can be avoided.
You Become A VIP: You are likely to inherit builder-provided VIP benefits like the seven-year Tarion Warranty Program and other benefits including credits, upgrades, developing cost caps, and more.
More Choices: You could still be able to choose your own finishes, colors, and upgrades depending on how far along construction is.
Negotiate: Sellers typically have to sell in order to release their equity. You may be able to negotiate prices, deposits, and closing dates with this.
Brand-new Condo: Instead of waiting 2 to 3 years like in a traditional pre-construction contract, you will receive your unit much sooner. The occupancy date is frequently just a few months away.
Taxes: Saving money on taxes like GST and HST may also be advantageous to you.

Selling an Assignment

In the past, owners who wanted to sell their pre-construction condos had to hold off on listing their condo for sale until the final closing date, which may take months or years. They might have already invested a sizable sum of money in closing costs and occupancy fees by this time.

Although assignment sales are not a new technique in Canada, when compared to other nations where condos have been around for far longer, the process is not always fully understood by sellers, buyers, agents, lawyers, and even lenders. By learning about assignments, sellers have been saving time and increasing their revenues, which has been rewarding.

The popularity of these transactions is rising. Consider it similar to condo flipping. In order to get their deposits back, sellers who transfer their property rights before or during interim occupancy can avoid incurring significant carrying and closing charges.

The majority of builders allow assignment sales, however they frequently have requirements that must be followed. There are still options open to you despite the strict rules in place.

Let’s Take a Look at the Advantages for Sellers:

Re-invest: You can withdraw your equity and reinvest in other projects.
No Carrying Costs: Paying monthly expenses, such as occupancy fees, which can occasionally extend up to two years, is avoidable.
No Closing Costs: There is no requirement for you to obtain a mortgage or pay any other closing fees.
Play The Market: Profit from the rising condo market by selling the unit before it is completed and investing the proceeds back into another project. It is a major contributor to Toronto’s economy and is still growing.

Assignments Frequently Asked Questions

What is an Assignment Sale?

It is the sale of a contract to buy a unit that is still under construction. In other words, the contract or right to purchase the property after it is finished is being sold, not a unit that has already been completed. The initial buyer of a property (the “assignor”) transfers their contractual duties to a subsequent buyer (the “assignee”).
In general, the assignee will take on all of the assignor’s responsibilities, including paying taxes, interest, and maintenance fees while the property is in transitional occupancy. Upon completion, the assignee receives the real estate’s title and is responsible for paying all closing costs.

Is an Assignment legal?

It is allowed unless expressly banned in the original buy and selling agreement. In some circumstances, the assignor may be charged a fee by the developer for this form of sale.

Is it required to obtain the developer's approval to assign the contract?

It depends. For more information, refer to your purchase agreement. Developers typically won’t allow an assignment sale without their consent, so you’ll need to speak with them and a lawyer. There have been incidents where an unauthorized assignment sale led to the cancellation of the initial agreement and the preservation of the deposit!

Where can i list my assignment sales?

If you are looking for an assignment sale network or premium platform to display, locate and access assignment sales and assignable preconstruction projects, place them with confidence, effectiveness, privacy, and security, try Assign Circle. Contact us or check our assignment sale packages for more information.