Selling an assignment is not an easy task.
What is an Assignment Sale?
An assignment sale refers to the process by which a buyer, who has signed an “Agreement of Purchase and Sale” for a new condo unit with a builder at the pre-construction stage, wishes to transfer or sell their interest in the property to a new buyer. This involves three parties: the builder, the initial buyer, and the new buyer.
During a pre-construction assignment sale, the property has not yet been built, and the transaction involves the transfer of the initial buyer’s interest in the “Agreement of Purchase and Sale” to the new buyer. The new buyer is not purchasing the property itself, but rather the right to take over the initial buyer’s agreement. This process is commonly referred to as an assignment sale.
Builders of new condos usually allow assignment sales either free of cost or at a pre-determined fee.
Meaning of the terms Assignor and Assignee
The assignor, also known as the first buyer, is the individual who directly purchases a pre-construction home or condo from the builder. If the assignor chooses to sell the pre-construction unit to another buyer before the closing date, that new buyer is referred to as the assignee.
Pros and Cons of the Assignment
Advantages for Seller
From the seller’s perspective, there are several advantages to selling a pre-construction condo through assignment, including:
- Receiving a refund of the deposit paid to the Condo Builder, which typically ranges from 20-25% of the purchase price. This is especially beneficial if the seller’s plans have changed, and they need the money for other purposes, or if the seller is an investor who wants to invest the funds in another project.
- Avoiding occupancy fees, which can be substantial, especially if the seller has no intention of living in the unit. Since there may be a gap of up to two years between occupancy and final closing, the seller may not want to pay occupancy fees for a property in which they have no interest.
- Avoiding closing costs, which are often higher for new condos than for resales. The Agreement of Purchase and Sale typically outlines a list of closing costs, such as Tarion warranty charges, law society levies, and meter connection charges, which can add up. Selling through assignment allows the seller to pass these costs on to the buyer.
- Taking advantage of the increased value of pre-construction condos. If the seller purchased a pre-construction condo 4-5 years ago, the investment has likely appreciated significantly. Selling through assignment can be a great way to cash in on the profit and move on to other opportunities.
Advantages for Purchaser
Here are some benefits of buying an assignment listing:
- Lower purchase price. Buyers can purchase a condo at yesterday’s prices, as sellers price their units lower than what the developer would charge today. This can result in tens of thousands of dollars in savings compared to buying from the developer, and sometimes even less than the resale market. The seller wants to recoup their investment and move on, so buyers can take advantage of this.
- Stronger bargaining position. Instead of dealing with the Condo Builder, buyers negotiate with an individual seller. They may be able to negotiate a better deal than if they were dealing with the builder.
- New condo without the wait. Many buyers don’t want to wait for years to move into their new home, and others don’t feel comfortable buying something they can’t see and touch. With an assignment, buyers don’t have to wait the usual 3-4 years, and occupancy is often just a few months away. Construction has either started or is near completion, so buyers can see and touch the finished product.
- Tarion Warranty. All new developments are covered by the Ontario New Home Warranty Program or Tarion, so buyers will have that peace of mind if there are any defects in the property.
- Inherit VIP incentives. Many sellers of assignments are investors who bought during the initial ‘VIP’ stage of the sales process. They received many upgrades for free and purchased at the lowest prices. These benefits can be passed on to the purchaser.
- Negotiate from a position of strength. Many sellers are selling because they need to get their money out now and can’t wait until occupancy or final closing. Negotiating with someone in this position can be advantageous for the buyer, who has the upper hand in the real estate market.
Why there are so many assignment deals these days?
The demand for condos exceeds the current stock available, creating a simple supply and demand issue. Many individuals are interested in real estate investments and opt to purchase pre-construction units with the intention of flipping them once demand increases. Some buyers engage in assignments by purchasing units at reduced prices after camping outside new developments and entering into assignments once the builder’s inventory is sold out. However, these condo assignment sales can be problematic and may turn sour quickly if caution is not exercised. Given that assignments are now recognized as a “Third Way” of purchasing condos in Toronto, in addition to the traditional methods of pre-sale or resale, it is crucial for real estate agents to have a clear understanding of the following:
- What a condo assignment sale entails.
- The advantages of condo assignment sales for both purchasers and sellers.
- Which clauses should be included in the Assignment of Agreement of Purchase and Sale.
- Red flags that should alert you, as the purchaser’s agent, to potential issues.
The Condo Assignment Agreement is a complex document that contains numerous clauses and conditions that must not be overlooked.
You definitely want to work with an experienced realtor who is knowledgeable about assignments.
One major challenge is finding a buyer (assignee), as many experienced agents are hesitant to share their knowledge with others. However, I have spent the last two years building a strong marketing list and utilizing various advertising tools that consistently bring in multiple offers for my clients. To further test the effectiveness of my list, I shared it with a close friend who is also a realtor and within a day of posting ads, he received multiple offers. It’s important for us as realtors to be cautious about where and how we advertise, as most builders do not allow listings on MLS.
Assignments require careful handling to ensure a mutually beneficial deal for all parties involved, including the builder, buyer, seller, and salespersons.
Please contact me today for advice on assigning your pre-construction property and to book your private consultation by filling out the form below or calling/texting at 416-797-6226, or emailing firstname.lastname@example.org
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