Mortgages

A blog category dedicated to mortgages including industry news, information to consider and advice from great mortgage brokers.

Kristi Holz FAQs

Assignments of Contract on New Construction

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to verify current lending requirements surrounding assignment sales – mortgage rules can change so this post may be out of date.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.

Kristi Holz FAQs

Use a Good Mortgage Broker

So the market is still.. competitive, unfortunately, with multiple offers on anything nice or priced well. I’ve had some luck submitting conditional offers for clients, but most of the time it’s a subject free offer that wins. Given the amount of competition in the market, buyers often have to push their comfort zone when it comes to their offer price, and without much forethought, which can be a risk for mortgage purposes.
 
The support of a good mortgage broker is SO important if you’re looking to purchase. Someone who can lay out your options given different down payments, inquires about your short and long term goals, explains what happens at the end of your first 5 year term, and goes through the different terms of a mortgage that could work for you (interest rate, portability, pre-payments, termination fees, etc). If you need to submit a subject free offer, your mortgage broker will work to get you as close as possible, explaining the risks involved.
 
If you haven’t already, make an appointment to see a mortgage broker to talk through your specific situation. Remember, banks don’t offer the service level that a mortgage broker can – needed in this market, particularly if you need a quick answer from your broker at night or over the weekend.
 
While you’re being pre-approved, sit down with a Real Estate Agent. I see so many Buyers try to do it themselves, without any idea of what to look for, or what to do. There are so many important details to get done behind the scenes during a real estate transaction, and a ton of knowledge to be gleaned from someone who’s been in the business for years, so don’t sell yourself short by not using your own agent. Remember, you don’t have to pay a Buyer’s Agent and our job is to make this as process painless and interesting as possible.
 

Kristi Holz FAQs

Mortgage Brokers vs Banks

Having a trustworthy relationship with a good Mortgage Broker is a godsend for Realtors. I am happy to help my clients with every aspect of their purchase, but I’m quick to refer my clients to a good mortgage broker. You need a professional because Mortgages are incredibly complex, even more so due to constantly changing mortgage regulations and increasing property values.

I prefer to refer Mortgage Brokers over banks for a number of reasons:

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