Looking at purchasing a pre-construction condo? You may have come across the term “Assignment”. Here’s the info on Assignment Sales and some useful information you should know before you begin.
What is an Assignment Sale?
An Assignment Sale occurs when a buyer successfully allows a third party to assume the rights and responsibilities of an Agreement of Purchase and Sale, prior to completion of the transaction. The third party, known as the “assignee”, then completes the transaction with the original seller and the original buyer (assignor) is free of all obligations to the transaction.
Sales of Pre-construction condominiums typically begin years before the condominium is constructed and ready for occupancy. Due to this protracted period of time, scenarios arise in which the original buyer is either not in need of the unit, or is unable to fulfill their duties with respect to payment and contract completion. For example, the buyer may have encountered financial difficulty, moved to a new city, or found a resale unit within the time period and decided to relocate instead.
Assignment sales can be used as a means to profit via the market. For example, a buyer who is bullish on market conditions may begin by purchasing 3 pre-construction units. In the next year, the market rises to his favour, causing his pre-construction units to be worth more than that which he paid. He may then wish to list and sell two of those units, keeping only one for himself. In this scenario, the buyer has just made a profit from the two additional units, while securing the base price in the building for himself.
How Does an Assignment Sale Work?
Not all builders will allow assignment sales. This is usually done to prevent “flippers” from purchasing the condo on launch-date, and reselling it prior to closing at a much higher price. However, builders that allow assignments of pre-construction condos, will nowadays require that they are paid a portion of the difference between the original purchase price and the assigned sale price.
Assuming the developer permits the assignment to occur, the seller will instruct the buyer to pay a sum of money on or before closing of the transaction. This sum is usually the difference between what the seller contracted to pay for the unit originally, and the amount that the seller has agreed to assign for. The Seller then provides the buyer and developer with a “Direction Regarding Title”, allowing the property to be placed into the name of the new owner at the point of closing. A prudent seller, when assigning a condominium, will also require the buyer and developer to sign a release which absolves the seller of all further liability with respect to the sale.
Assignment Sales: More Than Just Condos.
Its important to remember that ANY contract can be assigned, assuming there is a provision in the Agreement of Purchase and Sale allowing for it. Resale homes, multi-residential investments, and condos, both pre and post-construction can all be assigned prior to closing.
This is important to understand when selling a home. A purchaser could sense an opportunity and contract your property with provisions for assignment. They could then assign the property to another buyer for a higher amount and pocket the difference.
Assignment sales, however, are not always profitable. Developers who price their condo based on market speculation at the time of occupancy may cause units to be overpriced. In the event the market takes a downturn, a potential assignment could be listed at less than the original purchase price. In this scenario, the initial speculative investor would lose money on their investment.
What to Look For in an Assignment Sale
If you’re looking to assign your pre-construction condo, its typical to ask for a deposit equal to that of what you may have paid to the developer, to ensure that your initial cost is recovered. The remainder of the payment terms can then be negotiated with your potential buyer.
An Assignment Sale can be an incredible opportunity to purchase a unit that you may have missed during the pre-construction sale phase. Even if an assignment is selling for double its original price, the unit could still be worth more upon completion. It’s important to ensure that your best interests are being considered in this regard. Contact ReaLawState for more information regarding Assignment Sales and the pre-construction condo world.