In real estate, many investors purchase pre-construction condos with the hopes of realizing a windfall several years later when the condo is built and resold. In most cases, the market will naturally appreciate and the purchaser can make a profit through the subsequent capital gain.
An Assignment of Purchase and Sale is a sales method used by investors to realize a capital gain prior to the closing date. An Assignment refers to the transfer of rights in a contract to another party. This allows the original purchaser the opportunity to sell the property before arranging for any financing and pass along the closing costs to the new buyer. It is important to note that some builder agreements may include a non-assignability clause, or a right to assign only with seller consent. Legal advice is strongly recommend for all matters concerning assignments.
Some complexities that can arise when assigning an offer include the HST status of the property (if it is not occupied as a principal residence), builder prohibitions on advertising the assignment on the MLS® System, and potential builder fees for permitting the assignment. In addition, the original purchaser may continue to have liability to the builder until final closing (if the new buyer cannot subsequently close the transaction).
There are also some advantages of assignments. The new buyer can realize a lower purchase price, as well as lower land transfer taxes (LTT). The LTT would be based on the price paid by the original purchaser. The new buyer may also benefit from inheriting Platinum/VIP incentives that were negotiated by the original purchaser and obtains a new condo without waiting several years for it to be built.
It is also important for all buyers interested in pre-construction condos to be aware that there could be significant closing costs depending on the builder. Examples include: LSUC fees, deposit processing fees, mortgage discharge fees, development charges, education development charges, park levies, public art, Tarion fees, HST on chattels, utility meter installations, returned cheque fees, contributions to the reserve fund, HST rebate return, status certificate fees, and electronic document delivery fees. The fees in some cases could add up to $50,000 – $60,000 to the closing costs! Your REALTOR® should be able to help you understand some of these costs and recommend whether they can be negotiated in consultation with your lawyer.