Buying a condo on assignment is increasing in popularity as more buyers become educated on the advantages of taking this route to condo ownership in Toronto. We’ve processed countless assignment sales and have many happy buyers and sellers among our clients. How can buying on assignment benefit you? Let’s take a look at why so many people are using this strategy.
What is a pre-construction condo assignment sale?
The purchaser of a pre-construction condo investment will sometimes choose to sell their contract with the builder before they officially take possession. Because they don’t yet own the condo itself, they are selling their Agreement of Purchase and Sale with the builder to a new buyer. This type of transaction is referred to as an assignment sale.
Assignment sales usually take place if the original purchaser’s financial situation has changed, if they’ve had a change of heart, or are simply looking to “flip” the property. Flipping pre-construction condos can be a strategy some investors use to avoid paying closing expenses and cash out before registration, making a profit on their original investment.
Educated buyers and realtors know that when purchasing a pre-construction condo, an assignment clause should always be requested. By having this in your Agreement of Purchase and Sale, you are able to then consider selling your unit on assignment. You will still need builder approval, but this will already be built into your contract.
Advantages of Buying a Condo on Assignment
You Can Purchase a New Condo for Less
By buying a new condo on assignment you’re likely purchasing a product that’s been sold out for quite some time, at a price that’s likely no longer available. The price per square foot should ideally be less than today’s pre-construction prices. Not only are you able to get a brand-new condo but you’re able to get it for a price that no longer exists in today’s market.
Buying on Assignment Gives Buyers the Advantage
After construction it’s not abnormal for investors who want to cash out quickly, to sell before they take possession. What this does is create a massive amount of inventory in a building, which means buyers have more choice at a time when the building is still a work-in-progress. Additionally, investors are motivated to negotiate because they want out of their contract prior to the condo’s registration date, especially if there’s lots of inventory.
One of the reasons why buying a pre-construction condo is so appealing is the ability to build equity as the condo is being constructed. When someone is selling a condo before closing, they are typically leaving some of the equity that the condo has earned on the table for you to inherit.
Toronto’s condo market has remained strong and condos, even pre-construction condos, are generating significant equity each year.
Keep These Things in Mind When Buying on Assignment
Agreement of Purchase & Sale Cannot Change
When buying a condo assignment, you are inheriting the contract from the original purchaser as it already exists. It’s important to have your lawyer review the contract but note that the terms the Assignor agreed to are no longer negotiable.
A typical deposit structure for a pre-construction condo is 15% to 20% spread out over a couple of years – the varies from developer to developer. Depending on what phase the building is in when you purchase the assignment, you will pay the Assignor the deposits they have already paid to date. The remaining balance will be paid to the builder. Overall, this could be 15-20% up front.
In rare instances, you can purchase an assignment with as little as 5% down depending on what the Assignor’s terms are. By putting less money down, the Assignor has to wait until registration to receive their profits. Although this is not the norm, the likelihood increases as the registration date nears and the building is almost complete.
When purchasing a condo assignment, you will be responsible for all the closing costs when the building is registered with the city. Closing costs include Land Transfer Tax, Development Charges, Utility Connection Fees, HST and any legal fees. It is also at registration that your mortgage will officially begin.
Keep in mind, you are completely exempt from HST on a pre-construction condo if you plan to use the property as your principal residence. Investors who are leasing their condo will need to pay HST upfront. Your lawyer can file for a full HST rebate, refunded approximately 4 to 6 weeks later, provided you have a one-year lease in place.
Use a Seasoned Real Estate Broker
Using a broker who is seasoned and well-versed in assignment sales will help your transaction go smoothly. The same with your lawyer and mortgage broker. The paperwork involved with an assignment is a bit more complicated than your standard real estate transaction. Many agents and even real estate lawyers are not familiar with this type of sale, so make sure you use an agent who’s familiar with how to complete an assignment sale.
Customizing Your Unit
Depending on the timing of the assignment, you may be able to select your own finishes. The builder contacts the buyer typically one year prior to completion for these custom details.
Buying on assignment can provide many benefits. You’ll be able to get into a brand-new building, possibly customize your suite and realize equity upon registration. You’ll also benefit since your money is not tied up for years in a pre-construction condo purchase and get a short closing without having to wait. They also get convenience and luxury of buying brand a new unit and often pay lower maintenance fees. So don’t shy away from assignment sales – just make sure you’re working with a broker who has an exceptional track record of successful transactions.
If you’d like to see our top picks for available assignment sales, simply fill out the form below – we’ll be in touch right away.