6 Important Facts To Consider When Selling A Preconstruction Condo Assignment.

 

There are many reasons why people sell their preconstruction condo before it is complete, but there is a definite right and wrong way to go about it. When selling a preconstruction condo, it’s very different from selling a home that you’ve lived in. We call this type of sale an assignment, because we are selling the contract to purchase the home, not the home itself. This is a bit more complicated compared to a traditional sale because you are selling a contract, and have to negotiate payable taxes, development levies, deposit structure, purchase price and the date the buyer takes over the contract. Below are some important facts to consider when assigning your preconstruction condo.

 

Cashing Out On An Investment Made Years Ago

Because of the timeline of preconstruction condos and homes, it makes sense that some buyers who purchased a home 4-5 years ago might no longer need that home. Lifestyles change, budgets change, families change, so developers often offer buyers the ability to assign their condo or home close to occupancy if their circumstances change.

Sometimes, preconstruction condos are purchased by investors who speculate that the market will continue appreciating and they can assign it at a later date. These buyers had no intention of ever owning the condo, they were just looking for a profit on the deposits paid.

 

Who Buys Assignments

We’ve seen years of stressed inventory in the city, especially in high-demand luxury condos. Because of the stress put on the resale market, some buyers have turned to purchasing preconstruction assignment contracts. The downside of buying a preconstruction assignment is that it requires a lot of capital. Very few buyers have the capital to invest in an assignment, because the sellers are looking for their deposits and their profit. The banks also only lend up to 80% of the original purchase price, which could be hundreds of thousands of dollars less than the homes current value.

Competing with the builder

Every preconstruction contract is different, and so we cannot advise on your exact circumstances until we’ve taken a look at your contract. But from experience, most agreements of purchase and sale include:

• A restriction on marketing. Meaning you can only find buyers through your agent’s sphere of influence. Luckily, most successful brokerages in the city have assignment groups where they share their listings. Some agents have also turned to private Facebook groups to advertise their client’s assignments.
• The builder might stipulate when an assignment can take place, usually a few years after sales start, and ending just before closing date.
• An assignment fee. Even contracts that were sold “without any assignment fees” will probably ask the sellers to pay the builder’s lawyers fees to assign the home. The industry average for assignment costs, on top of builder’s lawyers fees, is between $1000-1% of the sale price of the home.

 

Contractual obligations and limitations

Builder’s contracts are full of what we call “nickel and dime charges“, when assigning a condo it’s important to assign as many of these charges to the buyer as possible. The buyer’s representative is going to try negotiate that the seller’s cover some of the fees and liabilities found in the contract. Things up for negotiation will include development levies, utility hookups, admin fees, environmental fees, and more. There are also contractual liabilities in the contract that the buyer’s will try have you stand liable for. It’s important to hire a realtor specialized in preconstruction resales, and a lawyer that practices this type of real estate transaction often.

Recently, developers started adding to their contracts that on assignment the original development levies and special incentives are no longer passed onto the buyer.

Read: Everything you need to know to assign (sell) your preconstruction condo assignment.

 

If you have a preconstruction property that you’re looking to sell, please contact us.