Buying and selling Toronto Condos can be a nightmare if you’re a Realtor and you are not familiar with how assignments work. With all these new buildings going up in the downtown core it's important that Toronto Realtors are informed and up to date in how to handle an assignment.
Some investors attempt to sell their unit immediately after taking possession from the builder; this is known as the occupancy period. It can be tough to sell the unit during this period as the buyer does not legally own the unit; the builder still holds the deed. This why the Ontario Real Estate Association created and called an assignment agreement in order to bring calm to all the chaos and confusion during and prior to occupancy.
Allow me to give you an example of what an assignment is;
Let’s say you bought a condo from builder’s plans three years ago for $300,000. It is now ready for occupancy, but closing is six months away. You’ve received an offer for $350,000 and want to sell now. Since you don’t own the unit yet, you must sell your interest in the contract that you have with the builder. Your buyer will then be taking your place in the agreement with the builder.
As the original buyer wanting to assign the agreement of purchase and sale to another buyer there are many things to consider prior to advertising the property for sale on the open market, regardless if you choose to market it as a MLS listing or not.
The first question that must be answered is do you have permission to even assign the agreement to another buyer from the builder? And if yes, are there costs that are affiliated with the assignment that the builder may impose on you? (Usually the builder will charge a nominal fee for an assignment)
With the example above who pays the land transfer tax? And is the amount based on 300,000 or 350,000? How about commissions? The agent will expect to be paid on final price of $350,000. If you want to negotiate a different amount, make sure it is done before signing anything.
What happens to the deposits given to the builder?
The second buyer returns it to the seller. The agreement will provide options about how this is done. They can be returned in several ways: as soon as the assignment agreement is signed, on the date of occupancy, or just prior to the final closing.
Are there any H.S.T issues?
The HST was probably included in the original builder agreement. Therefore, if the new buyer is not moving in, he or she may have to pay the HST to the builder on final closing and then apply for a rebate from the Canada Revenue Agency. The seller may have to charge HST on any profit, for instance the $50,000 in the above example, as well as on any deposits that are being paid back, if he or she originally bought the unit as an investment and never intended to move in.
Are you confused yet? I to sometimes get confused myself and I have been doing this for over 15 years now! don't worry, it happens to the best of us.
If you’re a buyer looking to buy an assignment it would be wise to read the original agreement of purchase and sale as their good be other hidden fees on closing, knowing who is responsible for these fees is important as you don't want any surprises at the closing table, I always suggest that the buyers lawyer review the original agreement prior to making an official offer. Also it would be prudent to check with the lender as sometimes these deals are tough to obtain financing. Having all these issues answered up front will help everyone involved.