What to know about buying an assignment

December 7th, 2018 - by UrbanCondo Team

couple reviewing a floor plan

In the search for a condo purchase in Toronto, hunters might come across a condo assignment sale.

Assignment sales occur during the pre-construction phase of a building. The original buyer/owner of the pre-construction unit receives the Agreement of Purchase and Sale contract which is a legal agreement that holds the condo unit in their name until the construction is completed.

At any time before the condo closes, the owner of the Agreement may change their mind and sell that contract to someone else. When the original buyer decides to sell their imminent ownership of the unit, it becomes an “assignment sale”.

Today we’ll explain a few tips that any prospective condo buyer should be aware of, especially if they’re considering the purchase of a condo assignment.

An assignment sale and resale purchase are two different things

Purchasing an assignment is purchasing the contract, not the unit itself. The building and ownership of the unit hasn’t gone through its closing phase, which you must wait for if you purchase an assignment. 

Land transfer will occur on the Final Closing Date where you’ll receive the title for the unit. On the other hand, purchasing a resale condo is more of an immediate transfer of land and title.

The down payment schedule will be different than pre-construction

Purchasing an assignment will have a different down payment schedule than it would if you signed on at the start of the pre-construction phase. You won't be in negotiations with the builder with an assignment purchase. You'll actually be in negotiations with the owner of the unit, who has already had negotiations with the builder and may have paid out a large portion of the down payment thus far.

You will be responsible for two things at Assignment Closing:

  • The total down payment paid to the builder by the original buyer (usually 20% of purchase price)
  • The difference between the new purchase price and the original purchase price from the builder (the seller may wish to profit off of the assignment sale)

As values tend to go up as a project nears completion or the building sells out, an assignment sale can be more expensive than getting into the building during pre-construction.

Builder’s consent

Many of the assignment sales you come across will require the builder’s consent.

Consent from the builder is usually required with an assignment sale before the transaction can close. The builder may make it a provision in the original Agreement and provide a deadline for assignment, after which no assignment sale can go through. It’s important to note that each developer will be different.

Mortgage approval

To get the Builder’s consent, you’ll need to prove that you’ve gone through a mortgage pre-approval process or provide Proof of Sufficient Funds that shows you can indeed afford to close the sale.

The loan needed would be the price of the original purchase of the Assignment minus the down payment that has been made to the builder.

Closing dates

The closing date(s) of an assignment sale can be a bit confusing. Though the purchase of an assignment is similar to a pre-construction purchase, there are additional closing dates to understand.

An assignment closing date could occur before or after the Occupancy Closing date. We’ll explain the steps below:

Assignment closing date: The date that your transaction goes through with the original contract buyer (assignor)

Occupancy closing date: This is when the unit owner obtains the key for their unit, also known as the interim occupancy period. A transfer of land hasn’t occurred yet, the building hasn’t closed, and the interim occupier will pay rent to the builder which often mirror condo fees.

Final closing date: When the property title changes to the buyer’s name and the mortgage payments begin in earnest.

Hire a professional

The closing dates, down payment and mortgage processes can be rather confusing and complicated during the purchase of an assignment.

If you’re considering this type of transaction in a building you’re really interested in, it’s a good idea to hire a real estate professional to provide guidance and help you understand the terms and conditions associated with this type of condo purchase.