If you’ve been looking for a condo in a brand new building, you may have come across “assignments” as an option to buy. If someone purchases a condo in a yet-to-be-finished new condo building and then wants to sell the unit prior to the completion of construction, they will need to “assign” the contract to a new buyer. The unit can’t be officially sold since the building isn’t completed yet, so instead the rights to the original purchase contract are sold to a new buyer, with the new buyer entering into the already agreed upon pre-sale contract with the Developer. The new buyer will receive the same information that original buyers received during pre-sale, which include the Developer’s Disclosure Statements, floor plans, colour schemes, etc. Any assignment buyer will need to know the important details of purchasing a pre-sale condo as well as the financing requirements of an assignment deal. The developer will need to approve the assignment sale and often only allows assignments when the building is sold out.
Financing for Assignment Sales
Financing is where things get tricky with assignments deals, as you may only be able to get a mortgage on the original purchase price of the condo (minus the original deposit), not the “lift” you’ll likely be paying the Seller. The “lift” is the difference between the Seller’s original purchase price and the price you pay the Seller. In a rising market like we’ve seen the last few years, it’s common for Sellers to be able to make a profit on their original investment.
This mortgage restriction with assignment deals is what makes these units really tough for the average person to be able to afford, as you generally need a lot of cash in order to purchase them. Check in with your mortgage broker to verify current lending requirements surrounding assignment sales – mortgage rules can change so this post may be out of date.
When looking to purchase an assignment sale, you need to find out the Sellers original purchase price, original deposit and whether any credits will be applied to the purchase by the Developer.
The contracts for these purchases are different than a standard contract. The entire purchase requires much consideration to ensure there are no surprises.
Give me a call if you have any questions: Kristi at 778-387-7371 or kristi@realestatevancity.ca.
DISCLOSURE: This post only an example. Details regarding GST, Property Transfer Tax, any applicable Capital Gains Tax, Lawyer Fees, Contract Details etc may be different depending on your situation, potential new rules regarding government taxes, the original Contract, Developer’s Requirements and more. Make sure you speak with professionals (Realtors, Tax Professionals, etc) about your particular situation.
Assignment of Contract Example
Seller’s Asking Price for the Assignment Sale: $514,900.00
ASSIGNMENT PRICE CALCULATIONS
Original Contract Price: $399,900.00
Upgrades (i.e. hardwood floors): $0
Extra Parking Stall: $25,000.00
Credits from the Developer: $0
Total Original Purchase Price: $424,900.00
Lift / Assignment Price (i.e. the Seller’s profit): $514,900 – $424,900 = $90,000.00
PURCHASE PRICE CALCULATIONS
What the Assignee (New Buyer) Owes the Assignor (Seller/Original Buyer)
Assignment Price: $90,000.00 ***Typically due upon Completion***
Replacement Deposit (i.e. Original Deposit paid by the Seller/Original Buyer, say 20%): $79,800.00 ***Typically due with an Accepted Offer***
Total Assignment Amount (i.e. what the New Buyer owes the Seller): $169,800.00 ***This (likely) cannot be mortgaged***
What the Assignee (New Buyer) Owes to the Developer
Original Purchase Price + Extras: $424,900.00
LESS:
Replacement Deposit: ($79,800.00)
Credits from the Developer: ($0)
Assignee Obligation to Developer (i.e. what the new Buyer will pay the Developer): $345,100.00 ***This can be mortgaged***
What the Assignee (New Buyer) Owes in Added Fees
Applicable 5% GST (on Original Contract Price): $21,245.00
Property Transfer Tax (on Seller’s New Asking Price): $8,298.00
Lawyer Fees: $1,500.00
Total Added Fees: $31,043.00 ***These fees cannot be mortgaged and are due on Completion***
IN SUMMARY
Total Amount the Assignee (New Buyer) will Pay: $545,643.00
Total Mortgage-able Amount: $345,100.00
Total “Cash” Needed by the New Buyer: $200,543.00
Note that the cash needed for an assignment purchase is more than you would need for a typical $515k purchase – and therein lies the problem for most Buyers.