********* Please note that assignments cannot be posted on MLS!!!!
What is a condo assignment?
With an assignment, the Seller is actually their contract with the builder. They aren’t selling the actual condo (as they don’t own it yet); they are selling their promise to purchase a property you are simply taking over the contract as it already exists.
It’s important to note that some builders won’t allow their original purchasers to assign contracts, or will only do so for a fee (assignment fees from $0 to $15,000). Builder approval to assign a contract is always necessary.
Advantages and Risks of Assignments for Buyers
When you buy an assignment, you take on all the terms and conditions that the original purchaser agreed to – so if he or she didn’t get a lawyer to approve the agreement for example, those risks are passed onto you. While you can have your lawyer review the terms they agreed to, you can’t renegotiate them.
You also take on the usual risks of buying a pre-construction condo: time delays, changes to the unit or building, extended interim occupancy periods, etc.
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.
Because it’s a new construction condo, HST may apply. If you don’t actually move into the unit, you’ll be responsible for paying tens of thousands of HST on closing.
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.
With an assignment, you will be eligible for the Tarion warranty program, which provides years of warranties against defects and problems with your condo, and because all the appliances will be new too, they’ll also be covered by warranties.
When the unit is officially registered and you close on the purchase, you’ll be responsible for all sorts of closing costs that don’t apply to resale units. These ‘builder adjustments’ apply to all new construction projects and include development and education costs, HST on appliances, utility connections fees and Tarion fees. These builder closing costs can easily amount to 1-3% of the original purchase price (and there’s talk of the development fees doubling in Toronto in the near future). If you’re looking at taking over someone else’s contract via an assignment, look to see if the original purchaser capped the amount of these costs when they originally negotiated the unit. Otherwise, make sure you have lots of money put aside for closing costs.
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).
When you close on the actual purchase with the builder, you’ll need to pay land transfer tax. Because no land ever exchanged hands, the original purchaser will get to avoid paying land transfer tax.
Going through the assignment process 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.
The assignment process is complicated, with risks, legal requirements and paperwork that doesn’t look anything like the usual agreement of purchase and sale for a condo. If you’re considering an assignment, make sure you work with a REALTOR who understands the intricacies of assignments and can guide you through the process. As always, I’d be happy to help!