Condo Assignments Defined.LR12

DEFINITION An assignment of an Agreement of Purchase and Sale is when the original purchaser from the Builder agrees to allow a new purchaser to take over the contract with the Builder. The original purchaser does not have to close with the Builder and does not take possession or title to the property. The new buyer takes over and completes the property purchase with the Builder. The assignment in a nutshell is the Sale of the right to purchase a property. WHY ASSIGN AND NOT SELL? The City has not given the permission for Occupancy yet. It cannot be a sold using conventional methods. WHAT ARE THE ADVANTAGES OF AN ASSIGNMENT SALE? There are a number of advantages to assigning a contract. They are as follows: Advantages To the Seller/Assignor 1. The seller/assignor does not usually have to pay the Builder’s closing costs and land transfer tax. 2. Seller wishes to take out equity earlier on in the process. 3. Property appreciated and Buyer wishes to re-invest appreciation/gain in a different project. 4. The seller/assignor does not have to pay the GST/HST rebate back to the Builder. This would be payable on closing by anyone who does not intend to occupy the property or will not have it occupied by a family member. HST paid to the Builder on closing is claimed back from the government as a rebate. 5. The seller/assignor avoids the carrying costs (mortgage, maintenance fees, taxes, etc.) for the time between listing the property and selling a property. Advantages To the Buyer/ Assignee 1. The buyer/assignee may receive a price advantage over current properties on the market; 2. The buyer/assignee will receive a brand-new home and, depending on when the assignment takes place, have the ability to make finish selections; 3. The buyer/assignee may be able to take advantage of the deposits of the original buyer and be able to put less of a down payment on a property than he would otherwise have been able to. WHEN CAN YOU ASSIGN AN AGREEMENT? Assignments and when an assignment can take place is decided by the developer. Its more common place to see Builders allow for an assignment of the contract at any given point in time but this all depends on the builder. Free assignments are usually part of the builders incentives when VIP sales kick off. Prudence requires that you inform the builder once you decide to assign the unit so the builder can advise on what is required for a successful assignment sale. RECEIVING CONSENT FROM THE BUILDER. If the original buyer has the right to assign the agreement under the terms of the contract, he should find out what the Builder’s requirements are. There are often specific requirements, fees, and forms which must be completed if the Builder is going to consent to an assignment. Its is also more common place to see free assignments or assignments at a lower cost as opposed to the past. It is still possible to obtain consent to an assignment even though the contract does not include a clause entitling the original buyer to make an assignment. There are many Builders who will allow assignments even though this is not specifically stated in the contract. It is always up to the builder to waive the prohibition against the assignment and allow the original buyer to assign the agreement. As is the case when the contract allows for the assignment, they will always have their specific forms and criteria which must be met. The sales office should be contacted to determine if the Builder will agree to allow an assignment and if so under what circumstances. Some Builders will allow an assignment but prohibit a listing on the MLS system, while others may not have such a restriction. Each case is different. If the agreement prohibits an assignment and the Builder does not allow them, there is little, if anything that the original buyer can do and he will have to wait until after closing to sell the property. WHAT TO DO ONCE YOU DETERMINE THAT CONSENT CAN BE OBTAINED? When you determine that the builder will consent to an assignment, one must be careful on how you list the property. If the property can be listed on the MLS system, you do so as an assignment of the agreement. If the builder will not allow listing on the MLS system, you may have to list the property through other mediums or methods of giving the property exposure to buyers, such as by word-of-mouth. Under no circumstances should you list the property on the MLS system if the builder does not allow it as this may result in the original buyer being in breach of the Agreement of Purchase and Sale.   WHAT DO YOU HAVE TO THINK ABOUT WHEN YOU ARE NEGOTIATING THE ASSIGNMENT DEAL? There is a lot to think about on assignment transactions. The essential elements, however, are as follows: What is the purchase price and does it include the adjustments that the Builder will charge on closing? Most assignment agreements have the new buyer taking over the contract, in its entirety, and paying the adjustments to the Builder on closing. However, in some instances the new buyer and original buyer agree to split the adjustments (other than those for taxes and maintenance fees). For example, the original purchaser (seller) purchased a condo for $250,000 with $50,000 down. The same condo is now being sold for $300,000. There is an additional $10,000 deposit payment to be made to the builder. Therefore, $40,000 has already been paid by way of deposit to the builder $200,000 is still owed to the builder $10,000 of which will be paid upon occupancy for a final deposit Assignment can be listed for $300,000 taking into consideration the initial deposit, balance owed to the developer, final deposit on occupancy. Who will pay the assignment fee? If there's an assignment fee, the original buyer or new buyer could pay the fee to the Builder depending on what is agreed upon during negotiations. How much money will the seller/assignor get and when? Usually the original buyer has paid deposits to the Builder under the contract as seen in the example above. When the contract is assigned, these deposits are taken over by the new buyer. The original buyer will usually want his deposits back as well as the profit on the sale. From the original buyer’s perspective, the more funds that he can obtain before final closing the better. From the new buyer’s perspective, the less he can pay before final closing the better. The way that a balance is usually struck between the new buyer and the original buyer is that upon the Builder’s signed consent to the assignment to the new buyer the original buyer receives the deposits he has paid to the Builder back. He then waits for final closing to obtain his profit. Again, however, it is important to note that each deal is different and that this can be structured in any way that both parties agree to. When will closing take place? There are two closings here, closing of the assignment and closing of the sale with the developer. Closing of the assignment deal is determined by the Assignor and Assignee. This is usually before occupancy. Closing of the transaction with the developer depends on the stage of construction that has been completed. If the occupancy closing has not taken place then the new buyer will have no choice but to wait until the occupancy closing. The earliest possible date that a buyer can occupy the unit is upon occupancy closing. If occupancy closing has taken place, then the closing date can be set to any time after the Builder signs consent to the assignment. It is important to note that the new buyer will have to pay occupancy fees usually from the day that he takes occupancy of the property just like the original buyer would have had to pay. If the new buyer takes occupancy mid-month then an adjustment between the lawyer for the original buyer and the new buyer will be made. Who will receive the interest on the deposits paid by the original buyer? In most cases, this is a small amount and the new buyer gets the benefit of the credit for any small interest payments on the deposits paid to the Builder. However, if significant deposits have been paid and they have been sitting with the Builder for some time then the original buyer may want to include a clause which entitles him to the interest on the deposits. Most of the time, the new buyer would respond that as he is paying the adjustments on closing he should have the benefit of the interest on deposits. Again, this is a matter to be negotiated between the parties. Who will receive the benefit of any creditor incentives given to the original buyer? Very often the original buyer will have negotiated some special incentives into the contract and it will have to be decided whether the original buyer will retain the benefit of these or whether these will be assigned to the new buyer. WHAT TO DO ONCE YOUR HAVE NEGOTIATED THE TERMS OF THE CONTRACT? After you have considered the terms of the contract above, you will have to write up an agreement to assign the property. This is usually now done by using the TREB assignment agreement to which a schedule detailing how payments will be made is attached. This schedule is attached to the agreement as is the original Agreement of Purchase and Sale with the Builder. From the buyer’s and seller’s perspective, the assignment agreement should be clearly conditional on a review of the original Builder’s deal and the Assignment Agreement with the new buyer. This will allow the original buyer and the new buyer to have their lawyers look at the terms of the assignment agreement and ensure that all of the above matters have been properly considered and addressed. This will also ensure that the lawyer for the new buyer will be able to look at the original contract with the Builder to make sure that what the original buyer says he has the right to sell is in fact what he has the right to sell. It will also give the new buyer an idea of what the closing adjustments with the Builder will be, which is particularly important if he is expected to pay for them. The entire agreement should also be made conditional on the consent of the Builder to the assignment. As noted above, the Builder must agree to the new buyer taking over and the new buyer and original buyer can only be sure that they have a deal after the Builder has consented. After the Assignment Agreement is drawn up and the conditions above are included, the agreements should be sent to the lawyer for the buyer for review and the lawyer for the seller for review. Once they have made their comments and everybody is in agreement as to the terms of the contract, the assignment application should be made to the Builder and the steps that the Builder requires for consent should be followed. This may include: confirmation of financing for the new buyer, ID confirmation for the new buyer, signing the Builder’s mandatory consent form and paying the fee (If any). It should be noted that even after consent, the Builder will generally hold the original buyer responsible if the new buyer fails to pay and complete the deal on closing. It should also be noted that even though the Builder reserves this right against the original buyer, in most cases, it does not give the original buyer the right to complete the transaction if the new buyer does not complete the transaction. This is a risk to the original buyer and he should be aware of this possibility. This does not mean that the original buyer cannot try to complete the transaction. It merely means that he does not necessarily have the right to do so. A NOTE ON FINANCING. The transaction should be conditional on financing as in the normal course. However, you should ensure that financing is arranged on the new assignment purchase price. Some mortgage agents are unfamiliar with financing an assignment transaction and as such getting approval for the loan on the new purchase price can be difficult. You should try and send the new buyer to a mortgage broker familiar with assignments to obtain the appropriate confirmation of financing. OTHER THINGS TO CONSIDER. Time – It takes a little longer to put together an assignment deal because of all of the matters noted above. HST – the original buyer has to have intended that the property be his own residence for the assignment to be exempt from HST. If the buyer did not so intend, HST may be applicable to the transaction. If HST is applicable to the transaction, a rebate is provided by the government for the HST portion  of the purchase. Progress Report – The new buyer should agree to keep the original buyer posted on the progress of the transaction with the Builder. This is because once the new buyer has been granted the assignment, the Builder will no longer have to deal with the original buyer, and the original buyer will therefore not be aware of the progress of the transaction and when he will be paid. This can be put into the schedule to the agreement. Additional Clause(s) – Even though the Builder may not have agreed to it in its assignment agreement, you should consider putting in a clause expressly allowing the original buyer to complete the transaction with the Builder if the new buyer does not. Most common clauses: - Acknowledgement that the new buyer is responsible for the remaining deposit - Acknowledgement that the new buyer is responsible for the interim occupancy fee - Acknowledgement that the seller understands that if the buyer is unable to close, the seller (original purchaser) will be responsible for closing the condominium - Laying out the payments and who is responsible for what payments and when (I know Brian is very picky about his assignment contracts, and I'm hoping he has some comments in this thread about all of this). Fees – Legal fees on assignments are associated with drafting and reviewing the schedule and agreement as noted above, as well as paying close attention to the multiple closings associated with an assignment transaction [the new buyer’s lawyer has to close with the Builder and with the original buyer’s lawyer]. Some lawyers do not deal with assignments and you should select a lawyer for each side who is familiar with this process. TODAY'S REAL ESTATE MARKET Many have taken advantage of the 'good times' and have been 'flipping condos' for investment purposes. Many clients have bought over and over only to be MORTGAGE FREE today. It is an art to flip condos before they are built. You need a knowledgeable real estate agent with financing capabilities to get into the game. You are advised as to the builders, their success and mentality, the areas, why some are good buys and why others are not.   CONDO MARKET OUTLOOK - INDICATORS CONCLUSION: You can stay ahead of the pack by diversifying your Investment and buying yourself a new condominium. You can see your investment appreciate over a shorter period of time. Units may sell from $10,000, $20,000 or $30,000 more in a week to over $250,000 2 years later! You can be rest assured that no Bank Interest account can beat that. Our team is always here to guide you through the process if you decide to purchase and assign your new unit. Contact us at info@starioncondos.com. CLICK HERE to see Toronto Real Estate Board's Condominium Assignment Basic Guidelines. (TREB Condominium Assignment Guidelines)

Monthly Archives: March 2016

Condo Assignments Defined.LR12

DEFINITION

An assignment of an Agreement of Purchase and Sale is when the original purchaser from the Builder agrees to allow a new purchaser to take over the contract with the Builder. The original purchaser does not have to close with the Continue reading ..