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There are two points of view on costs;

1. The Assignor (seller) and

2. The Assignee (buyer).

And there are usually two closing steps:

Step 1: Interim Occupancy (some builder's call this "The Closing Date" and;

Step 2: Final Closing (sometimes called "TitleTransfer")

Summary of Costs

Based on these examples, your actuals may vary:

• Original Purchase Price: $400,000
• New Purchase Price: $500,000
• 8 months occupancy period (can often be longer than a year)
   

Step 1: Interim Occupancy - Assignor
(all amounts are examples, your actuals may vary)

Assignor's Assignment Fees.

Builders typically charge the Assignor an assignment approval fee based on a percentage of the original purchase price plus an Administration Fee plus HST. Or, a flat fee of similar size or more. Some builders have offered free assignments as marketing incentives.

Example: Most builders charge an assignment approval fee. For example, if the fee was 1% of your original purchase price and if your condo originally cost you $400,000, you would pay $4,000 in fees to the builder plus HST at 13%. (Ontario) plus perhaps an administration fee plus HST on this.

Builders will typically ask Assignors to pay their legal fees to have the request documents drawn up by their lawyers. This varies between $300 and $600 plus HST. In a recent transaction, it was $400 plus HST @13% or $452.00.

These monies are paid by bank draft or money order by the Assignor after a Firm Agreement (e.g.; Toronto Real Estate Board Form 150) is reached between the Assignor and Assignee and after the Builder's final approval is obtained. They will require proof of mortgage pre-approval from BOTH the Assignor and the Assignee. 

Builders may hold the assignment fees until the assignee's 10-day rescission period has expired. This is rare.  

Builders will sometimes stipulate that Assignors will pay a request denied fee if your request is turned down. This might be about 10-15% of the assignment fee or about $300 on a $250,000 sale. This is rare.

Table: Interim Occupancy - Summary of Costs at Acceptance of Assignment by Builder and assumption by Assignee of Interim Occupancy

($400,000 as original price and $500,000 as the new purchase price)

AssignThisCondo

Schedule of Realty Fees (List/Buy)

Listing Fees:  4.0% + HST

Discounts may apply:

1. Use of MLS Approved by Builder: Discount of 0.5%

2. Advance Paid by Assignee once Assignment Approved by Builder: Discount of 0.5% 

Buyer Co-op Fees: 2.5% + HST

Note: Realty fees are ONLY paid if there is a successful assignment transaction. 

Step 1: Interim Occupancy - Assignor (seller) Costs

There are no costs for the Assignor (Seller) during the Interim Occupancy period other than the one-time costs shown above as the Assignee (New Buyer) has assumed the occupancy costs during this period.

Step 1: Interim Occupancy - Assignee (New Buyer)
(all amounts are examples, your actuals may vary)

Step 1: Interim Occupancy - Assignee (buyer) Costs

Deposit on Assignment Agreement - One-time cost that is returned with interest, if any, on final closing. The Assignee is required to provide a "good faith" deposit to the Assignor with the offer. This would typically be in the range of $30,000-$50,000 or up to 5% -10% or more of the new purchase price.

These monies are called a "soft cost" for the Assignee as they are held in trust by the Listing Brokerage to secure the assignment agreement and returned to the new buyer (Assignee) at closing. Interest is paid at a prescribed rate on the deposit to the Assignee but it is typically below the minimum threshold and thus zero is paid. A schedule "D" is attached to the Assignment Agreement that specifies the terms. The deposit soft cost is also referred to as an "opportunity cost" (an investment term) since one can calculate the cost of the monies tied up in these deposits instead of other investment opportunities.

Interim Occupancy Deposit to the Builder - One-time cost that is returned with interest that is usually zero given current prescribed rates (prime less 3%). The Assignee is required to make this payment to the Builder if the Assignment takes place prior to Occupancy. Again, deposits are a "soft cost" and returned to whoever pays it at final closing. This deposit is held in trust by the Builder and reduces the Balance owed on the Original Purchase Price. These deposits have some limited protection under the Tarion New Home Warranty Program should the project fail. Coverage is up to $40,000 for condos.

Interim Occupancy Deposit is typically 5% of the Original Purchase Price but could be higher or lower. Using the example of a $400,000 original purchase price, the deposit at 5% would amount to $20,000.

Interim Occupancy Fees - monthly until final closing
The Assignee will be required to assume the payment of the Interim Occupancy Fees from the date of acceptance of the assignment agreement until Final Closing (or a date agreed to in the Assignment Agreement). Often, the Final Closing Date (aka Title Transfer Date) is not known at the time of the Assignment Agreement Acceptance. Typically, the time between interim occupancy and closing is 6-12 months but this period can be longer. It is not unusual for it to be longer than 12 months.

Interim Occupancy fees are made up of three factors:

1. Balance Owed Builder x prescribed rate by Condo Act  (eg. 1-yr mortgage rate of less than 2% as of Summer 2020) component that uses a prescribed interest rate applied to the original purchase price of your unit less any deposits you have made to them. What assignor paid for it, not what they are selling it for. The interest rate is regulated by the Condominium Act and is usually about the same as the conventional 1-year mortgage rate.

2. Condo Fees (estimated) e.g.; $0.55 per square foot of your suite (not counting the balcony or basement in the case of a condo townhouse).

3. Property Taxes (estimated) e.g.; 0.75% - 1% of original purchase price.

The Assignee does not have to pay any other costs to the builder or assignor and may occupy the unit right away. The Assignee would be responsible to pay for any utilities not included in the condo fees, e.g.; possibly water, hydro (electricity), etc. and personal services like cable tv and telephone. Fire and Liability insurance during the interim occupancy period is mandated by the Builder for both the Assignee to have and the Assignor to insist on (thru a clause in the Agreement).

NOTE: The Occupancy Costs do NOT reduce the amount the assignee will owe on closing - no principal is being paid down. For example, over the course of the first full year, the principal paid off on most mortgages amounts to a small fraction of the mortgage payment. The market price appreciation at say 4% per year would be at many times this. The interim occupancy fees represent a fair "rent" in return for occupancy and there is a financial advantage to the Assignee when price appreciation is taken into account. From an Assignee's point-of-view this is preferred to paying these fees and not occupying or renting the unit (not practical if trying to assign).

Step 2: Final Closing Costs - Assignor (Seller)
(all amounts are examples, your actuals may vary)
 

Final Closing Costs  - Assignor (Seller) Costs

a. Realty Fees. The largest single cost for the Assignor. Fees are based on a percentage (%) of the new selling price of the unit plus HST. Example: $500,000 new purchase price x 6% = $30,000 plus $3,900 HST = Total of $33.900

b. Legal fees. Seller fees are less than Buyer fees and typically range around $1,600.00.  These fees are a bit less than what is paid by the Assignee. This is the same as with all real estate transactions - Buyers have more disbursements than Sellers, plus usually includes recommended title insurance.

c. Property Tax Holdback. This is often required by the Assignee's lawyer to protect against underpayment of property taxes during the interim occupancy period since the unit was not yet assessed. Example: 6 months x $300/mth = $1,800.

Assignors will get a "Statement of Adjustments and Costs" from their lawyer several weeks prior to closing with all these costs determined so that you can be ready with a certified cheque for the amount owing.

Step 2: Final Closing Costs - Assignee
(all amounts are examples, your actuals may vary)
 

2. Assignee (buyer) Final Closing Costs

The assignee will pay the following fees and costs as an example:

a. Legal fees. About $1,200-$1,500 plus disbursements and title insurance, typically a total approaching $2,000.

b. Land Transfer Tax (Ontario & Toronto) -  calculator.  You will pay this tax on the NEW purchase price. For example, a $500,000 price would cost $12,950 (in Toronto, less if outside Toronto). First-time buyers get rebates on both Provincial and City tax (if applicable) of $8,475 ($4,000 & $4,475) respectively). Ask me about this.

c. Levies. All new home or condo sales have levies associated with them. These include development, educational and utility levies (gas, hydro, sewage, etc.) that the builder will allocate to the unit owners at closing. This "adjustments clause" is present in all new home builder contracts. They are left "open-ended" (exact amounts are not provided). The City often increases these Levies over and above what the Builder has built into the price. Usually these increases are "capped", sometimes they are not. Typically, these increased levies are about $3,000-$5,000. The builder can only pass through the actual costs and is not permitted to add profit or administration fees.  Example: If the educational levy was Increased by $500,000 for your condo building and there was 200 units in your building, the levy would be $2,500 ($500,000/200). If you had a cap of $1,000, you would save $1,500.

Warning: Check the Builder's Agreement for amendments that do not transfer these "incentives" to the Assignee. Builders often override incentives in Assignment deals. The builder usually notifies the unit owners of these cost 2-3 weeks before closing. Reports.

d. Tarion Warranty Fee: based on the original purchase price net of all taxes including HST so will be based on an amount less than the original purchase price of $400,000, we have been using as an example on this page. I will use a simple formula to create the Net Price example: Gross Original Price (400,000) x HST Factor (100/113 (0.885) = $354,000. As per Tarion's warranty fee schedule, the fee would be about $880.00.

e. HST Rebate. Often the builder will require this Rebate be paid back on assignment deals. The assignee must be eligible for the rebate. This means they must prove to CRA that they have moved into the unit (proof of address change) or leased it for a minimum of one year from date of Final Closing. - either works. An application on a CRA form can be made to get these monies back. Reports.

Warning: This HST Rebate amount can be up to $24,000 on condos valued above $400,000 (based on original purchase price). This applies to ALL new condo purchases, not just Assignments.

f. Other Adjustments. Check the Agreement under "Adjustments" and definitely have these understood prior to closing.

g.  Condo Reserve Fund. Reserve Fund initial payments may be stipulated in the original builder's agreement. We have seen Builder contracts that stipulate a three-month condo fee be paid by the Buyer to "kick-off" the condo reserve fund. With condo fees ranging from $400 to $600 or more, this is something you want to be prepared for at closing. This is a non-refundable cost and does not offset your condo fees owed.

h. Property Tax. Usually required by mortgage/lender to create a reserve, e.g; 3-6 months of estimated property tax.  

i. Insurance Costs (monthly). The assignee must purchase condo insurance to cover contents and public liability as per the terms of their mortgage.  

Total Costs: $25,000 (without first-time buyer rebates)

* Based on the example used of a $400,000 original purchase price and a  $500,000 new purchase (assignment) price

Call Dennis at  416-399-5832 for an Expert Consult

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