It's very important that the original purchaser of a Pre-Construction Condo read their APS carefully to find out if their contract can me assigned and if yes, under what conditions. Some Builders expressly prohibit assignment of contracts. Those that allow typically do so under defined conditions. These include:
No assignment until a certain percentage of Building is sold (typically 90-100%).
Payment of an Assignment and associated Lawyer fees ($0 - $6,500).
Restrictions on advertising unit for sale. Most Builders prohibit advertising of unit for sale on MLS which is a breach of the Agreement of Purchase and Sale which entitles the Builder to cancel the deal and Buyer loses his deposits. Some Builder will allow an assignment but prohibit a listing on the MLS system. Each case is different so always read the contract carefully.
Builder allows Assignments, now what?
You determined that Builder allows assignment so the next logical step will be to find a Buyer. This is the tricky part as the majority of Builders do not allow you to advertise the unit for assignment on MLS. Violation of this restriction can lead to breach of contract, lost of deposit and termination of Agreement of Purchase and Sale; definitely not worth the risk. Our team works with both Buyers and Sellers of Assignments. You may want to contact us or an Agent that specializes in assignment sales.
I found a Buyer for my Assignment.
You are looking to assign your 1B+D contract for unit located in King West. Luckily you contacted us at Assignments Toronto and we were able to find a Buyer who is looking for a similar unit and wants to purchase around the same time that you will receive occupancy from the Builder. The agreement will be written up on an OREA Form 150 (Assignment of Agreement of Purchase and Sale Condominium). This form has pre-printed clauses and areas for description of unit, deposit to be paid to Brokerage, Schedule A (for all the important custom clauses), Schedule B (Calculation of funds for the Agreement), Schedule C (Copy of the Original Agreement of Purchase and Sale between Builder and original Purchaser).It's critical that the Assignment Agreement (Form 150) is written up so as to protect the interest of all parties. Here are some important points that should be considered.The Assignment should be conditional on:
The assignment agreement should also include clauses in Schedule A that covers which party is responsible for HST, Occupancy fees, Levies (If they weren’t capped in the original APS), closing costs etc. Schedule A should also indicate when the agreement will close (typically when Builder executes assignment), how the remaining deposit and profit will be paid. Other factors to consider include, who receives the interest payment on deposits held by the Builder or any incentives that the Builder credits on final closing. You should also consider putting a clause in that requires the Assignee to keep Assignor in the loop on the progress of the transaction and when he will be paid (since Builder will now only communicate with the Assignee). It is also wise to include a clause that makes adjustment to funds owed to Assignor on final closing for any breach of contract between original purchaser (Assignor) and Builder such as unpaid deposits, unpaid occupancy fees, NSF charges and unpaid fees related to upgrades. A clause that protects the Assignor for losses or costs caused by Assignee’s failure to close the transaction with Builder is also recommended.
*Scenario A. Amy (a savvy real estate investor) purchased a 2Bedroom/2Bath Pre-Construction Condo in 2015 from Builder P at the intersection of Adelaide and Bathurst. She paid $410,000 inclusive of Parking and Locker (great deal) with a 20% down payment spread over 2 years. She used an experienced pre-construction agent who was able to get Levies capped at $5,000. He was also able to get her a $4,000 credit on final closing. The contract permits assignments (for $0 Builder fees, awesome!!!) but only after 95% of units are sold and with Builder consent. The contract however prohibits unit from being listed on MLS. Amy plans to flip her contract just before occupancy which is scheduled for Spring 2020.Three months before occupancy, Amy contacts her agent at Assignments Toronto indicating that she is ready to assign her contract. She meets with him and he provides her with market research data indicating that similar units are going at an average of $650K. Amy is ecstatic!!! She does understand however that the unit is an assignment and the cost associated with Closing will be incurred by the Assignee. She therefore agrees to sell at (a discounted) $560K.Muhammad is a Permanent Resident who migrated to Canada a year ago with his Wife and young Son: Both works in IT on Bay Street. He currently rents and for the past 4 months has been looking to purchase a 2 Bedroom in the King West neighborhood. With not much inventory and available units attracting multiple bids Muhammad is presented with this assignment opportunity. Muhammad is at first in disbelief that he can get the unit at such a great price. His Agent explains the assignment process and also the fact that he will need to have quite a bit of liquid cash to take advantage of this assignment. His Agent proceeds to break down the financial requirements:
( A ) Total Purchase Price including the original APS $560,000
( B ) Purchase Price of Original APS $410,000
( C ) Profit (A-B) $150,000
( D ) Deposit paid by Assignor to Builder (20% of $410,000) $82,000
( E ) Payment by Assignee to Assignor for Assignment Agreement (C+D) $232,000.
Muhammad will pay $232K for Amy’s original APS contract with Builder. His Agent prepares Form 150 with full details of payment schedule and important clauses that will protect all parties. Muhammad will pay Amy back her original deposit to Builder of $82,000 upon Builder executing the Assignment. The profit portion of $150K will be paid to Amy subject to adjustments on final Closing between Muhammad and Builder. Amy agrees that Muhammad will keep the $4,000 closing credit offered by Builder in the original APS. Amy is happy with the smooth transaction (and her windfall). Muhammad is pumped!!! he just scored a sweet 2B/2Bath with Parking and Locker for $90K below market price.
*The above scenario is for illustrative purposes only. Names, Businesses and events are fictitious. Any similarity to Persons, Businesses or events past or present is totally coincidental.
**The above article is copyrighted. Use of all or parts without Assignments Toronto's consent is strictly prohibited.
We have qualified buyers (both investors and end users) looking to purchase. Please drop us a line. We will take care of all the details involved in assigning your unit...Hassle free!!!!
We at Assignments Toronto understand that not everyone will have the available liquid funds to purchase an assignment. As such, a resale unit maybe your best option. Let us find you that perfect resale Condo. We are great negotiators!!!!