Often you will see new apartments advertised for sale for a building which has just started or has yet to start construction.
Buyers will then purchase these suites knowing there is often a 2 - 3 year wait for the building to complete construction (if not more), this is called pre-sale offerings. In some cases just before the building is complete, the current purchasers of the suite have the right to sell the original "contract of purchase" which is now known as the "assignment of contracts".
An assignment is basically a sale of the original purchase contract based on today's market value of the home. Different from regular real estate transactions, to purchase an existing contract of purchase, an assignment fee must be paid to the developer, and all the initial monies paid out by the Seller will need to be reimbursed to the Seller from the Buyer.
All assignments involve 3 parties. The Seller of the original contract, now referred to as the "Assignor"; the Buyer of the contract, now referred to as the "Assignee" and the Developer. The assignment is always subject to the Developer reviewing and approving the transaction.
As a purchaser of my assignments, you are basically inheriting all responsibilities and commitments that were agreed upon by the original Buyer and Seller.
Here is a sample of an assignment purchase transaction:
John Smith bought a 1 bedroom and den condo in 2003 for $200,000 + Net GST(equivalent to 4.48%). John knows that the building is completing soon and decides to sell his "Contract of Purchase and Sale" for $235,000 including net GST. John has paid a total of 25% in deposit monies in the past totaling $50,090.00 which is being held in trust with his lawyer or real estate office.
An interested Buyer, purchases this original Contract of Purchase and Sale from John Smith for the asking price of $235,000. Here's is a breakdown of the amounts which make up the asking price:
- $50,090.00 is the original deposit paid by the Seller (original Buyer now called the Assignor)
- $27,522.88 is the Assignment Consideration (or Profit)
- $7,477.12 is the net GST due from the original sale
- $149,910.00 is the balance due to the developer, per the original contract terms
- These 4 amounts total $235,000
The developer also needs to approve the documents and the sale of the contract. Once both parties have signed all the relative Assignment documents, they get sent to the developer for signatures and final approval.
The seller must pay an Assignment Fee to the developer for the sale of the contract. This amount can range from $200 to $1000 dollars or a percentage of the sale. In the case of this sale, the developer request 1% meaning John Smith had to write a cheque to the developer for $2,350.00 in order to sell his contract. John is also responsible for all legal fees (if applicable) and commissions due. These amounts are usually deducted from the "assignment consideration"
Assignments can be a very confusing ordeal if not explained properly to all parties involved. Assignments can be very lucrative to Sellers if marketed correctly and can be a very rewarding purchase opportunity for any perspective Buyer. With many years of successful transactions with assignments, I can definitely be an extreme asset in helping you market your contract or represent your purchasing of an assignment with complete confidence without the confusion. Let my expertise be your edge.