What is a Condo Assignment?
A condo assignment is when a Seller, known as the Assignee, sells their interest in a property before they take possession. The contract they have with the Builder is sold to a new Purchaser, known as the Assignor. The actual property is not being sold since title hasn't been transferred yet, so this is not to be mistaken. Rather, what is being sold is the contract itself, along with the rights and obligations of the Agreement of Purchase and Sale. The Assignor is the new Purchaser and assumes the contract with the Builder.
Why Do People Assign Condos?
With pre-construction condos, there is often a waiting period before the project begins, breaks ground, construction starts, etc. This process can take several years. There is also an interim occupancy period. This is when the Purchaser takes possession of the unit and can move in, up until the time when the building is fully inspected and registered with the city.
That said, there are times when an original Purchaser cannot fulfill the agreement for various reasons. Life changes. New job, new opportunities, mortgage approvals don't work out, familes increase in size, etc. For example, a couple expecting their first born child may not want to move into a condominium apartment unit anymore, and would rather a detached home in the suburbs. Sidebar: those days are almost long gone!
Sometimes, serious real estate investors have zero intention of closing on properties and only wish to recapture their initial investment, plus the growth in value of the property over time.
The Agreement of Purchase & Sale might stipulate an assignment fee that must be paid to the Builder. This can range from $500 up to thousands. If you are in an Agreement with a Builder or you are about to enter in one, consider reviewing and asking about this to avoid being blindsided down the road. Luckily, these fees are usually capped by the Builder, almost like a guarantee.
An Assignee may wish to market their property on MLS. This is not always possible. Review the documents to see what the rights and limitations are with this. That said, it can be difficult to find a Purchaser to assign the contract to.
What Taxes Are Involved?
In general, any profit made from an assignment is taxable. A new Purchaser will be responsible for paying land transfer taxes and any HST that might be due. I strongly recommend seeing your accountant for the true and full disclosure of tax implications.
Why Should I Assign My Condo?
- You get your deposit back
- You reap the benefits of any increaes in equity based on the market price you assign your unit for
- You do not pay land transfer taxes
- You do not pay HST
- You control the amount of your return on your investment as the real estate market shifts
- You have control over your lifestyle changes over time
- You do not have maximum exposure when trying to sell an assignment
- You might wait a long time before it sells
- Marketing restrictions
- Market value can be more difficult to determine
- Assignments tend to sell for less than resale properties
- Assignment sales can be complicated