Do assignments only happen with pre-construction condos?
You can technically assign any type of property assuming the original contract doesn’t stipulate differently. It is much more common to see pre-sale condos listed as assignments due to the nature of the timing and many of the buyers being speculative investors.
Why would someone want to assign a condo?
Pre-sale construction can take a long time, especially with high rise buildings. Some take as long as 5+ years to build. Over that period of time it is not uncommon for the buyer’s situation to change. This could be things as common as meeting the right person, having a child or getting a job out of town. What might have worked then would not work anymore.
Another reason why someone would want to assign a property is for financial gains. Many speculative investors see the opportunity to make a gain before actually closing on the property. The Fraser Valley real estate market has seen speculative investors buying mostly on transit in developing areas. Some of these areas include Langley, Surrey, Burnaby.
Finally a reason why someone would want to assign a condo is they don’t have the money to close on it. If the original purchaser had lost a job for example and could not secure financing, they would likely want to assign the contract or potentially lose the deposit and deal with other legal implications.
What can be negotiated with an assignment sale?
As the Assignee would be taking over the original contract, it is unlikely anything can be renegotiated with the builder/developer as this already exists. Developers are unlikely to accommodate things such as changing the colour scheme.
Since the contract and deposit have already been solidified, what you are likely negotiating on is the new price of the Contract. Depending on the circumstances most sellers are looking to make a profit.
The profit the seller makes above and beyond the original contract is referred to as the Lift. It’s important to have a skilled real estate agent to help with the negotiation. This is a whole other topic that I would be delighted to chat about.
Builder Approval and Fees
Hopefully you chose to have a real estate agent represent you vs the developer when you first purchased the pre-sale condo as they would have pointed out some key details.
The builder or developer typically will allow assignments but more times than not the building must be sold out. You have to be approved by the developer to list the property for sale on the MLS. It’s common as well that the listing agent will be limited to where they can market it. A good example is that many builders will not allow an assignment listing on MLS ( Multiple Listing System). This can make it significantly more difficult to sell.
If the developer/builder does allow for assignments, they will typically charge an assignment fee. This is a fee to assign the contract. I have seen as low as zero and as high as 5% of the original purchase price. Typically what I see for an assignment fee is between 1.5% to 2%. Always refer back to your original contract as it will outline the terms and fees or seek legal advice.
How do I find a buyer with all these restrictions?
It’s important to engage a real estate agent. It’s important that the agent you reach out to also has lots of experience with assignments as the contracts are a lot more confusing.
What are the tax implications of real estate assignment?
The best advice when it comes to taxes is to speak with an expert. I highly recommend speaking with a tax expert or your accountant. I can recommend someone as I can’t advise on the taxes.
Generally speaking though when you sell an assignment property you will need to know about Property Transfer Tax, GST and Capital Gains. Please reach out so I can recommend an expert for you to connect with.
Costs associated with assigning a pre-construction condo
-Builder/Developer Assignment Fees ($500 to 5%) of the Lift
-Realtor Fees – Typically 7% on the first $100,0000 and 2.5% up to 3.5% on the balance split between the buying and selling agents.
-You can expect to pay your accountant for his advice.
-Taxes
-Legal fees – with any sale of property legal fees are involved, typically between $800-$2500
How does the closing of an assignment work?
There are basically 2 closings:
1. The closing between the Assignor and the Assignee, and
2. The closing between the Assignee and the Builder.
The first closing (the assignment closing) the original purchaser receives their deposit + any profit (Lift) from the Assignee. This can be done in several different ways, but the Assignor will typically want to receive the deposit and lift back. The timing of payments can be negotiable.
On the second closing (between the Builder and the Assignee), the Assignee pays the remaining amount to the Builder (usually after securing a mortgage) and pays land transfer title. The title of the property transfers from the Builder to the Assignee at this point.
Should I Assign the property or wait and close on the property?
I ask this the question often, should you assign early on or hold on to the property until completion. Although everyones situation is different here is a list of Pros and Cons:
The Pros of Assigning (assuming a strong market)
-Get your deposit back and get your profit sooner
-Maximize profits at a moment in time vs waiting on an unstable market.
(Contact me about key market indicators)
-Change in plans, life has a way of changing. Moving on sooner than later can be beneficial
The Cons of Assigning
-The buyer pool is typically much much smaller. End users will not be able to see the unit, or show room and can not change any features or colour schemes.
- It can be difficult to market with lots of potential restrictions from the builder.
-Typically speaking buyers are looking to get a little better price on an assignment. It might be hard to maximize the value vs a completed staged unit that you can see and feel
- Assignment sales can be complicated, so you want to make sure that you’re working with an agent who is experienced with assignment sales, and a good lawyer.
Are you thinking about Buying or Selling an Assignment?
Please reach out at any time and I would be happy to help.
If you would like more information here are 2 great resources:
https://www.bcfsa.ca/public-resources/real-estate/consumer-resources/consumer-guide-assignments
https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/gi-120/assignment-a-purchase-sale-agreement-a-new-house-condominium-unit.html
Example Assignment Transaction
For instance the original Purchaser buys a home from the Developer in 2020 for $200,000 with a total down payment of 25% paid to date ($50,000), completion is scheduled for 2024. In 2022 the original purchaser decides to sell or "assigns" the property to another party for a sale price of $275,000.
To purchase the assignment the new buyer must pay the following:
Original Deposit
25% paid to date by Original Purchaser - $50,000
Plus
Difference in Assignment Price from Original Price
New Price $275,000 less original Price $200,000 - $75,000
Total Deposit/Cost today to Purchase Assignment - $125,000
Payable to Original Purchaser to take over contract
When the property is ready for occupancy in 2024 the new buyer completes the sale with the Vendor:
In 2024 when property is complete and ready to occupy:
Original Sale Price - $200,000
Original Deposit Paid - ($50,000)
Funds required to Complete Sale - $150,000
(Payable to Developer/Vendor)
Therefore the total cost for the property is $275,000 with $125,000 due immediately (payable to Original Purchaser) and $150,000 (payable to the Developer/Vendor) due at completion.
