What are the benefits to the assignor (original buyer)?
Not having to pay the occupancy fees (often 3-6 months or longer)
Not having to pay the closing costs, including those "open ended" levies.
Not having to pay the Land Transfer Taxes
Getting the deposit back (including the interest paid by the Vendor).
Making a reasonable profit on the market appreciation of the condo unit.
If you happen to be a first time buyer, you would retain your status for the next purchase (assigning means you never took title so you still qualify) and be entitled to the credits when you do buy and take possession of another property at some later date.
Not having to worry about the HST rebate qualification.
What are the benefits to the assignee (new buyer)?
A new unit (often never occupied/never rented).
All new warranties (manufacturer's 1-year on appliances and 7-year Tarion).
The PDI (pre-delivery inspection) has been completed.
Much smaller deposit for a much shorter time than when buying new.
Opportunity to see the unit and building rather than buying from pictures (only applies if interim occupany has started).
What is the biggest challenge to completing the assignment?
Selling without the use of MLS. Builders (a.k.a. The Vendor) will not allow the property to be listed on MLS and technically restrict use of all advertising such as Kijiji, and other Internet channels. You need to check your Agreement of Purchase and Sale with the builder to see what conditions they have placed on Assigning your unit as well as the fees, if any, if they do allow it.
Why would builders not allow assignments?
Builders do not want to compete with current unit buyers for the sale of remaining inventory. If they have sold all their units or perhaps sold all units of your type, they are more inclined to grant permission for assignments as they make some money on the fees (1% of the original purchase price for example).
What happens after a new buyer has been found?
This is when you submit a request to get formal approval from the builder/vendor to assign your unit to the new buyer. If you are within the terms set by the builder/vendor for assigning (completely up to them to determine this with no appeal possible) then they will accept such a request. They have their own 2-3 page form to complete identifyng the new buyer and stating the terms of the Assignment including the need for the new buyer to pass a credit check and mortgage approval. After you and the new buyer sign the form and submit it to the vendor, you will wait usually 1-2 weeks to get formal approval or (rejection).
You submit your assignment fee payment with the builder assignment request.
You do not need to pay in advance for Assigning your unit . As outlined above, you submit a request to the builder after a new buyer (assignee) has been located and you have a seperate Assignment Agreement (Form 150) with this new buyer (assignee) that has all conditions satisfied (finance, legal review, etc. - there is no status certificate becasuse it is not a registered condo and of course, no inspection as it is under construction or not desired (your call) as it is completely covered by new home warranty). In other words, when you have a firm Assignment Agreement.
Why are some buyers reluctant to do assignments?
A concern some buyers have is not knowing when closing will be and they are paying the occupancy fees (like rent with no credit towards the purchase price) up to closing. Usually closings occur 2-4 months after interim occupancy but builders do not guarantee this and closing can take longer (up to 12 months from interim occupancy). Builders are motivated to get the building registered as a condominium corporation and do the closings as quickly as possible to get their monies - delays cost them money.
Are vacant units harder to sell than furnished units?
Yes. We recommend that assignors make use of a specialized staging service that provides furnishings and staging that will usually sell the unit faster (saving occupany fees) and for a better price. This is only possible during interim occupany. You can get preliminary estimates by phone and complete quotes at no cost or obligation after our stager visits your unit. We highly recommend you consider HomeonDisplay
AssignThisCondo.com receives no fees for endorsing Home on Display and we have no financial connection whatsoever with this company.
AssignThisCondo.com, will provide a $200 incentive against your costs of using this (or any other) staging service upon the successful sale of your unit.
Do assignment realty fees cost more than resale?
Our realty fees are higher for assignments than resales. Our fee is 6% of the total purchase price plus HST. This fee covers the listing service and the co-op buyer fees (the fees paid to the agent/brokerage representing the new buyer/assignee). The Buyer (co-operating brokerage) side of the transaction is paid 3.0% from the 6%.
If we should represent both sides (we have done this successfully - called "multiple representation") the fees remain the same. In our experience, we do 80% of the work involved since many Buyer representatives are not experienced in handling assignments and we must be sure that they properly inform their clients. We are sure there are exceptions.
The additional costs for the assignor is the Builder/Vendor assignment and legal fees.
The additional cost for the assignee is the interim occupancy fees and the usually uncapped levies for education and utilities plus the usual closing costs.
Why should I pay more for your services?
We understand, you want to find a realtor who will do it for less. You will. Many have never done an "assignment" but that's okay, it's your money and it's always nice to get good value. But lower fees in a complex sale will often cost you more in the long run.
Here are four reasons why our fees are justified:
We have a higher success rate. Ask how many they have closed out of how many they have listed.
We have been doing this since 2003. I know it has to be made simple for the Buyer Agent side as they don't know the process either. You can't make it simple unless you understand it well. I do the work for both sides but they still get half the fees.
We have all the tools to expose your unit without the use of MLS (usually not permitted by the builder). See reports. (Exposure Without MLS)
Our negotiating and selling skills will get you the market price and not lose you thousands more than the difference in fees involved
Are there tax considerations with assignments?
When is there not tax considerations?
HST is included in the Price for the assignment. Like a resale, assignments are priced with HST included.
HST Rebate. We recommend inserting a clause in Schedule "A" that clearly states that the new buyer (assignee) accepts the responsibility for the HST rebate that forms part of the original purchase price. If the assignee does anything after closing to disqualify himself for this rebate that the builder is owed, then the builder has the right to be compensated by the assignee. Assignees disqualify themselves for the HST rebate by renting or selling their units within one year of closing. The HST rebate is 1.5% of the original purchase price (plus upgrades) for values up to $350,000 (that's a max of $5,250).
Income tax is a whole other consideration and you need to consult a tax expert on this. One of the issues faced by the assignor is the tax implications of the profit (if any) on the assignment being taxed as income or capital gains. This distinction and the way it is determined makes a huge difference in taxes paid by the assignor. Again, consult an expert.
Why do builders sell pre-construction condos at prices that seem to allow buyers/investors to make a profit by flipping?
Pre-construction prices are generally lower than those of existing condominium resales. This brings up two obvious questions: 1) Why do developers discount the units for pre-construction buyers? and 2) Why do they sell pre-construction rather than build first? The answer to both questions is the same--they have to.
The prices are discounted to give buyers the incentive to buy something they can't see, touch or feel. Sky and paper are harder to sell than concrete and steel. Discounts make the difference. Developers sell pre-construction, even at the lower prices, because they must have pre-sales to get their construction loan. Lenders may require 50-80% of a project to be sold before construction can begin.
Once I have completed flipping the property, assignors have no further responsibility, right?
Wrong in most cases. You are the original buyer of the property and if the second buyer does not complete the purchase, then the developer will then expect the person flipping to close at the original purchase price. In this way, it is quite different from selling a piece of property in which you own title.
We always recommend a good deposit be obtained to protect you (the assignor) from the assignee backing out of the Agreement. You would also have the right to sue the Assignee for damages - the extra costs incurred in you now having to close with the builder.
Are Assignment investments risky?
All investments have risks.
Real estate investments are less risky then most other investments because you are not trying to time when you will sell - you have choices. If the market has been good since you placed your deposit money, you can assign and take your profits. If the market has not been good, you can move in or rent it out and sell later if you wish. Time and market growth are the two major factors determining your profit, See my exclusive report that shows how these play out - Condo Investment Plan - Flip or Hold.
Are Condo assignments hard to sell?
Assignments are harder to sell than existing properties. It is still not built so you can't show it to potential buyers. They have to buy from paper and pictures (just like you did) but you don't have a sales centre behind you. Also, builders will not let you advertise on MLS. They don't want you to compete with their remaining units. You need a good realtor with excellent tools other than MLS, to expose your property to buyers. I do have such a system. My success rate is 90% and I have been doing this since 2006, much longer and more successful than most.
How much money can I expect to make?
If you get a condo market growth of 5% (low vs the forecasts) and you assign after 3 - 4 yrs you will have a gross value appreciation of 15 - 20%. The costs are around 7% (of the new selling price) so you net 8 - 13% on the original purchase price and you only invested the deposit (10-20% of the purchase price). So using a $300K condo as an example, you could have a net profit of from $24,000 - $39,000. This produces a very high ROI as a % of the deposit. (in this example $30 - $60K) of from a low of 40% (60/24) to a high of 130%(39/30). You never need a mortgage, you don't have to be a landlord and you don't have to fix-up.