What is a Condo Assignment Sale?

How do Condominium Assignments Work in Toronto?

Defining an Assignment:

An Assignment Sale is when you sell your Agreement or “assign” your contractual rights and obligations to the Developer that has not yet registered with the city. Essentially, you sell your paper contract to a new buyer – the Assignee. In Toronto, assignments are more common in pre-built condos than on resale properties, but to be clear, they are possible in any type of trade.

Why Would Someone Want to Sell Their Condo on Assignment?

1 / Typically, pre-construction condos are purchased years before the project is built. Many times it’s three to five years between the time the suite is acquired and the Buyer taking occupancy of the property. Many lifestyle changes may occur during this period, including career, family & income shifts. What was an “opportunity” for a buyer or investor at one point may look different as the closing date approaches.

2/ Generally, financial reasons are the biggest driver to sell. The original Purchaser may not have access to cash to close on the property or the ability to secure a mortgage. Additionally, many sellers simply want to make a quick buck on their pre-build if appreciation has been steadfast over the years. Closing costs are not in-expensive, so Assignors are looking to find a workaround.

Examples:

• Final Occupancy Deposit (often 5% of the purchase price)
• Interim Occupancy Fees (until the building officially registers)
• Builder Closing Costs (4-8% of the original purchase price)
• Double Land Transfer Taxes that can’t be rolled into your Mortgage (City of Toronto)
• The HST Rebate Qualification will be the responsibility of the “Assignee.”
• Plus, the Tax Implications on your profit to be considered

When considering making a pre-construction condo investment, many realtors and so-called “experts” will advise that selling your condo on Assignment is a no-brainer way to make a tidy profit.

Essentially, you sell your paper contract to a new buyer – the ‘Assignee.’
Given how hot the Toronto Real Estate market is, many inexperienced agents (and buyers, for that matter) postulate that you can easily “Assign” your contract to another party – making an ample financial return by simply moving paper around! Ah, if only life were that easy!!

There is no doubt that there is money to be made in investing in pre-construction condos in Toronto. And some investors may have profited by selling on Assignment. However, it is not a get-rich-quick scheme as many hope, and we caution anyone approaching their pre-construction acquisition with this notion.

As experienced Brokers (and investors ourselves), we at Fox Marin do not personally invest or recommend anyone purchase pre-construction with the intent to Assign as a potential exit strategy or “get rich quick” scheme.

So, what are so many Buyers & Agents missing about the process?

First, these are not “simple” deals to structure, and many brokers shy away from assignments because of the red tape & associated confusion.

You may have the “right” to Assign built into your Agreement of Purchase and Sale. However, a lot of small print is generally overlooked from the onset.

Here are some things you may not know about assignments:

1/ Most developers charge an Assignment Approval Fee. For example, if the said charge was 1% of your original purchase price and your condo initially cost you $650,000, you would pay $6,500 in fees to the builder plus HST at 13% plus a possible administration fee on top of this.

2/ Generally, Assignment sales are prohibited from being advertised on MLS or any other public platform such as Craigslist, Kijiji or Facebook. In turn, it can be challenging to market your Assignment to find another buyer. Wouldn’t you agree?

3/ Did you know the Developer can withhold consent to Assign your contract at any time, for any reason (and often will)? That’s right. Developers want to avoid competing with Assignment sales if they have remaining inventory to sell. If they have sold most of the building, they are more inclined to approve an assignment and will profit from the Assignment Fee (mentioned above). They will also score a “backup buyer” if the original Purchaser fails to close. The original Purchaser is still liable if, for some reason, the new Buyer cannot close on the property at final occupancy. And generally, you’re given only one opportunity to Assign. If the deal falls apart, you don’t get a second chance.

In our experience, in most instances, more significant profits are generated for the Seller after the building registration.

You’ll see more bang for your buck if you sell the property as a residential resale condominium down the road. If the Listing Broker does their job, the suite will be staged, styled, marketed to a broad audience, and sold in short order for maximum returns.

Note, be careful about triggering issues with your HST Rebate qualification if you sell on the open market within the first year of registration. This should be discussed in more detail with your Real Estate Lawyer & Accountant before making any selling decisions!

Are there any benefits to the Assignee (the Buyer) in looking at Assignment opportunities in 2023?

In short, yes.

From Fox Marin’s perspective, there may be great opportunities to acquire a brand-new condo on Assignment this year at a competitive price. Many original purchasers will have to qualify for a mortgage at higher interest rates PLUS the mortgage stress test. Additionally, pre-construction condos sold at record-breaking prices per square foot 2-3 years ago. With this in mind, many original Purchasers may be scrambling to close due to closing costs, potential carrying costs & mortgage qualification issues.

As a buyer, there may be some benefits:

1/ a significant opportunity to negotiate on the price if Assignors are struggling with mortgage qualification & closing costs

2/ a smaller cash deposit is required for a short period (vs. purchasing from the builder)

3/ benefitting from occupancy years sooner than if you had purchased at the release date (a 6-12 month wait versus 4-5 years)

4/ a brand new unit equipped with a pre-delivery inspection & Tarion warranty

5/ excellent market rents when the suite is ready (if you’re seeking a straight-up investment opportunity)

Buyers and agents shy away from assignments because they are complicated and jam-packed with loopholes and tons of paperwork. They are 100% doable, and we at Fox Marin have been involved in many of these transactions for both Assignors & Assignees alike!

In Summary

We recommend anyone buying pre-construction or investing in the Toronto Real Estate Market view the purchase as a long-term hold and not a quick “flip.” If you’re an original purchaser looking to “Assign,” we recommend riding it out if you can make it happen!

The existence of an Assignment clause in your original Agreement is “nice to have,” but it is NOT a viable investment strategy and is certainly not a guarantee!

If you’re a buyer or an investor looking to gain access to real estate opportunities, Assignment Sales may be an exciting avenue to explore in 2023. Though a lot of paperwork (with some potential roadblocks), this may be worthy of consideration.

If you have additional questions about assignments, pre-construction or real estate investing, drop us a line or send us a note – we’re happy to chat any time!

Contact Us (We’re Nice).

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This article was co-written by Brokers Kori Marin & Ralph Fox. If it’s one thing Ralph & Kori know, it’s Toronto Real Estate. Both have been investing and following the market for decades, well before taking the plunge headfirst into the industry. Over time, the pull of the Toronto real estate market became more and more irresistible. And so, they made moves. Kori left behind a corporate career in senior account management, and Ralph followed suit from his entrepreneurial ventures in international sales. With high motivation from their own experiences and successes, Kori and Ralph saw Toronto for its growth and dynamism. Even more, they saw opportunities in real estate, finding a need for higher levels of professionalism and first-hand market knowledge. To them, the answer was a no-brainer. They took best practices from the corporate and business worlds and combined both sides into a tailored real estate experience.