Have you been browsing MLS or REW.ca for condominiums and seen listings that are selling as “assignments”? Here’s all the info you need to know on this unique type of condo deal.
Pre-construction condos deals
In one sentence, assignments are a resold, pre-construction, interim agreement to purchase a property between the buyer and the developer. Sounds complex? Here’s the breakdown:
- A buyer decides to purchase a condo from a developer during it’s pre-construction phase, and signs an interim purchase contract (with a price, conditions, deposit, and other standard terms etc.)
- After the development is built and becomes move-in ready there is a period of ‘interim occupancy’, where the buyer can take possession but not full ownership of the condo. At this time they pay the builder an amount roughly equal to the sum of their mortgage payment + condo fees + taxes. No land transfer or mortgage has yet occurred and the deal is technically not “firm.”
- The temporary status of the deal is dependent on the new development completing an official registration process, including passing municipal inspections and legal processes. At some point during a successful registration, a buyer’s mortgage will become active, their ownership will be confirmed, and the deal will be closed. The time between occupancy and registration (i.e. the interim occupancy period) can range from 2 months to 2 years, but will typically happen 4-6 months after buyers take possession (part of buying a pre-construction condo may involve some extra due diligence on the buyer’s agent’s side to confirm that the development has a strong chance of obtaining this necessary registration.
- Sometimes, buyers of pre-construction condos change their minds and want to sell prior to the occupancy period or before the deal’s official close during registration. They may be prospective investors who never intended to take possession, or perhaps their lifestyle needs changed. Whatever the reason, because they don’t yet own the condo they can’t actually sell the physical property. Instead they will list and sell their contract with the developer to another buyer. Essentially the buyer is selling their promise to buy a particular property. This is an assignment.
- Because assignment deals have already been negotiated and drawn up, you can’t renegotiate the price or contract conditions – it is a take it or leave it scenario. Note that most developers will require approval on assignment deals, some builders will disallow them, and still others will apply additional charges (approx. $500 to $8000)
Assignment advantages and disadvantages
Assignments aren’t as black and white as regular property transfer purchases, and have their own set of risks and fine details. Don’t worry though, we’ve handled plenty of these types of deals and can help you through the specifics of this unique type of real estate deal.
- Take it or leave it – Contracts come “as is”, so if the original purchaser didn’t do a proper legal review on the terms of the deal, you inherit these risks. This also includes construction delays, extended interim occupancy periods, and all of the other conventional risks of pre-construction condo deals. Depending on what stage of construction the condo is in when the contract is assigned to you, you may or may not be able to be involved in selecting finishes and upgrades.
- Taxation – Because it’s a new condo development, HST can apply. If you aren’t going to move into the unit, you’ll be responsible for paying tens of thousands of HST on closing. When you close on the actual purchase with the builder, you will also be paying the land transfer taxes on the deal. The original purchaser/seller got to avoid these before they pulled out of the investment.
- Deposit matching – When a condo is assigned to you, you generally have to mirror the deposit that the original purchaser has paid to date. So rather than providing the usual 5% deposit for a resale condo, you may be required to provide 15% of even 20% as a deposit. If you are a first-time buyer with a lower down payment, you may not be able to afford the deposits required for an assignment.
- Development fees – When you close on the purchase, you’ll be responsible for ‘builder adjustment fees that apply to all new construction projects and include development and education costs, HST on appliances, utility connections fees, etc. These closing costs can easily add up to to 1-3% of the original purchase price. Make sure you know exactly what you are in for before you pursure this type of deal.
- Higher legal fees – Legal fees to purchase an assignment condo are generally higher than typical resale condo purchases. For a condo under $500K, plan on legal fees around $2,500 (vs. $1,800 for a resale).
- The main benefit? – One major advantage to assignment deals is that they can be a great way to purchase a condo in a building that has no remaining inventory, and often the actual purchase price (before closing costs) is lower than it will be once the building has registered, and the condos are offered for sale in the resale market.