If you’ve purchased a new condo or are in the market to do so, you may have heard the term “assignment sale” and wondered what assignment sales are and how they work. Today, we’re breaking down everything you need to know about assignment sales.
What are assignment sales?
Assignment sales are a type of sale in which a buyer (assignor) sells their condo contract to a buyer (assignee) before the closing (move-in) date. Assignment sales occur for both homes and condos, however are most prevalent in pre-construction condos.
Why do people sell before their closing date?
When purchasing a pre-construction condo in Toronto, there can be a long wait time between the point of purchasing and the actual move-in date. It can sometimes take years before a condo is built and a buyer can move in. During that time, circumstances may change for the buyer. For example, the buyer may have accepted a job offer in another city, they may have gotten married and had kids and need a bigger space, or they may not be able to afford closing anymore. Another reason could be that the buyer bought the condo in an up-and-coming area and is now looking to make a profit on the sale. There are many reasons why a person may want to sell their pre-construction condo to another interested buyer.
How do assignment sales work?
Assignment sales can work in different ways depending on the builder. Some builders don’t permit assignments or allow them only if they are paid an assignment fee. So having the builder’s approval is the first essential step to proceeding with an assignment.
When a buyer makes an assignment sale, what they’re actually selling is the condo contract – not the condo itself, since they don’t actually own it yet (since it hasn’t been closed). They are passing along their contractual agreement with the builder to purchase the home – their right and their obligation.
The buyer purchases this right and obligation, and must abide by all the terms within the original contract with the builder, who is the original seller. The original buyer must sign an Agreement of Purchase and Sale, including an Assignment Agreement Clause.
The pros and cons of assignment sales
To break it down quickly, here are some of the main pros and cons of assignments.
- Buyers (assignees) can purchase a brand new condo at a lower price
- The condo’s price/value will likely continue to rise as it’s being constructed
- Buyers can get into an amazing building that sold out
- Buyers benefit from all the perks of the original agreement, such as having their new condo be covered by the Tarion warranty program, which offers years of warranty against errors and defects with the condo unit, as well as provides warranties for newly-installed appliances; the original agreement may also include upgrades, credits, and capped developing charges from the builder
- The builder must approve the transaction before it can go ahead
- There’s less ability to negotiate the price of the home, or the terms and conditions of the agreement, since buyers are inheriting the original purchaser’s contract
- Buyers (assignees) will be responsible for closing costs, which can sometimes include the education and development levies, Tarion legal fees, and HST on appliances
- Buyers will also be responsible for paying land transfer tax, municipal levies, legal fees and more