The BuzzBuzzHome forums are closed to new posts and replies.
Read more about this here.
 
Change Location
 
CONDO CHRIS
Buzzer
reply 99 vote 54
 

Assignment Sales. What do I need to know?

I have a client who wants to buy an assignment of a sale on a condo and to be honest I have never helped anybody buy one. Any tips about dealing with assignment sales would be appreciated..
13
Toronto / New Home Q&A
 
 
 
ROY BHANDARI
Senior Buzzer
reply 512 vote 60
 
 
Each assignment sale is unique and it may be necessary to get the help of a lawyer if you've never dealt with it.
There are a number of variables to consider:
a) Is the unit listed on MLS? Do you need to negotiate your own commission? This needs to be discussed - assignments are a lot of work and you need to ensure you're protected.
b) What documents are used to draft the assignment offer? OREA has an "Assignment of Agreement of Purchase and Sale" document, however, some builders require you to use THEIR paperwork. I've seen some agents negotiate on traditional Agreement of Purchase and Sale paperwork and then transfer it over to the necessary documents. Not a big fan of this as you are in theory creating two agreements.
c) Moneys (here is where it gets fun - I'll explain the nuts and bolts of it and then use an example with numbers)
Typically, the person selling has put down a deposit and has a balance owing. In addition, the price of the unit has likely increased (the profit).
As a buyer, you need to negotiate the final sale price - which will include a) payback of deposit, b) profit, c) balance owed to builder. If there is still a deposit owed to the builder, it needs to be negotiated and stated in the clauses that both parties understand that the NEW Buyer will be responsible for that additional deposit payment.
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,
$50,000 already paid by way of deposit to the builder
$200,000 owed to the builder
$10,000 of which will be paid upon occupancy for a final deposit
Your offer will look something like:
$300,000
$100,000
The payment timeframe of this also needs to be negotiated. Typically speaking, the cleanest method is the $100,000 to be paid up front. That way you are simply buying out the original purchaser out of the contract.
However, we are seeing more and more where they will, say, pay off the $50,000 deposit immediately (needs to be negotiated again if this is going into a trust account which can only be accessed upon final registration/closing or immediately) and then the $50,000 profit is to be paid upon closing. It can get messy and you will likely need the assistance of a lawyer if it comes to this to ensure you have a clean clause that can deal with it.
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)
-Has the unit been rented during interim occupancy? Is there tax implications for this? Do both parties acknowledge this?
Assignments are messy and each one is unique with their own circumstances.
Good Luck!
 
 
ROY BHANDARI
Senior Buzzer
reply 512 vote 60
 
 
Another key clause:
-This agreement is conditional on builders approval.
(quite important)
 
 
CONDO CHRIS
Buzzer
reply 99 vote 54
 
 
Roy said:
Each assignment sale is unique and it may be necessary to get the help of a lawyer if you've never dealt with it.

There are a number of variables to consider:

a) Is the unit listed on MLS? Do you need to negotiate your own commission? This needs to be discussed - assignments are a lot of work and you need to ensure you're protected.

b) What documents are used to draft the assignment offer? OREA has an "Assignment of Agreement of Purchase and Sale" document, however, some builders require you to use THEIR paperwork. I've seen some agents negotiate on traditional Agreement of Purchase and Sale paperwork and then transfer it over to the necessary documents. Not a big fan of this as you are in theory creating two agreements.

c) Moneys (here is where it gets fun - I'll explain the nuts and bolts of it and then use an example with numbers)

Typically, the person selling has put down a deposit and has a balance owing. In addition, the price of the unit has likely increased (the profit).

As a buyer, you need to negotiate the final sale price - which will include a) payback of deposit, b) profit, c) balance owed to builder. If there is still a deposit owed to the builder, it needs to be negotiated and stated in the clauses that both parties understand that the NEW Buyer will be responsible for that additional deposit payment.

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,
$50,000 already paid by way of deposit to the builder
$200,000 owed to the builder
$10,000 of which will be paid upon occupancy for a final deposit

Your offer will look something like:
$300,000
$100,000
The payment timeframe of this also needs to be negotiated. Typically speaking, the cleanest method is the $100,000 to be paid up front. That way you are simply buying out the original purchaser out of the contract.

However, we are seeing more and more where they will, say, pay off the $50,000 deposit immediately (needs to be negotiated again if this is going into a trust account which can only be accessed upon final registration/closing or immediately) and then the $50,000 profit is to be paid upon closing. It can get messy and you will likely need the assistance of a lawyer if it comes to this to ensure you have a clean clause that can deal with it.

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)
-Has the unit been rented during interim occupancy? Is there tax implications for this? Do both parties acknowledge this?

Assignments are messy and each one is unique with their own circumstances.

Good Luck!

wow. Thats great information. You've outdone yourself! Thanks. I think the best plan is to have the lawyer around during the offer process to double check everything. The clause that guarantees the original purchaser is obligated to close in the event that the new perchaser can't is very interesting...I wonder how often that happens?
 
 
STEPHANIE STOUTE
Buzzer
reply 60 vote 4
 
 
Roy - great info!

Question for you - have you seen many Realtor's, who are using the Assignment of Agreement of Purchase and Sale, fill in the purchase price incorrectly?

One of my clients purchased an assignment last year (no outstanding deposits) and I put in the profit as a purchase price.

Well, the Assignor's agent was convinced I was wrong and went on to tell me she had completed 20+ assignments with the purchase price as the combined total (original purchase price plus profit). She said if I did it the other way our commission would be cut, as it is based on purchase price as listed in the agreement! I was floored!

Either way, we worked it all out, but it was an uphill battle the whole time.

I'm curious if this is a common mistake in the market...
 
 
ROY BHANDARI
Senior Buzzer
reply 512 vote 60
 
 
^ The purchase price is the purchase price - not just the profit. Assuming my example above, instead of $300,000 you just put $50,000 in the purchase price?
The Purchase price is made up of:
Balance owed to builder now payable by the new buyer (In my example above, $200,000)
Deposit already paid owed to seller ($50,000)
Profit owed to seller ($50,000)
and it needs to be outlined in the agreement who is paying what to who. It's more than just buying a piece of paper from someone -- the builder still needs to be paid his $200,000 from someone!!
I think in that situation, the other agent was right (based on what I understand from your description). The agreement needs to outline the total purchase price and who is responsible to pay what to who.
 
 
STEPHANIE STOUTE
Buzzer
reply 60 vote 4
 
 
Yes, the purchase price is just suppose to be the profit. The original Agreement of Purchase and Sale is to be inclosed as a Schedule B, and the "purchase price" is what you pay to take over the original agreement.

I actually called OREA and spoke to the legal department about it because the other agent and I couldn't see it from each other's point of view! I also went back to my text book for Residential, and it to explains it as just the profit.

This only applies when using the Assignment of Agreement of Purchase and Sale form from OREA.
 
 
STEPHANIE STOUTE
Buzzer
reply 60 vote 4
 
 
Sorry - you do need to add back in the original deposit to that profit, as the Assignment Agreement does state that the Purchase Price includes the deposit paid to the builder.
So as per your example above, the purchase price would be $100,000
 
 
BRIAN PERSAUD
BabbleBee
reply 280 vote 17
 
 
Be sure to include clauses and undertakings that protect the client from side agreements made that you don't know about. Adjustments are a big key that you have to look out for, another thing is to have clauses that make the deal go smooth from a lenders perspective.
Chris I've sent you an email with some more detailed points. If anyone wants help with an assignment feel free to contact me directly
 
 
NISHA D
NewBee
reply 1
 
 
Roy great information!

I am a private buyer, interested in buying an assignment property. The situation is that the builder is releasing original buyer through mutual release with return of deposit, agreement. And then preparing agreement of purchase and sale for us (new buyers) at the agreed price of assignment (closing is in a month time from now).

The builder has the same property (same size, same model, same area in a new phase where closing is 1.5 yr after) selling in a higher price than the assignment price. Why would buyer sell it to us at the agreed assignment price when he is releasing the original buyer from the agreement of purchase and sale? The builder can sell the property at the higher profit margin to any other buyer correct?

Can you please shade some lights?

Thanks
Nisha      
 
 
CLIFFORD
Buzzer
reply 56 vote 3
 
 
Who is the builder?  I'm very nervous of assignment deals.
 
 
EMMAMEGAN
NewBee
reply 1
 
 

Very informative post.With the explosion of Condo Assignments Toronto today, more and more assignment transactions are taking place. An assignment is the transfer of a contract before occupancy. It means taking over the contract of the original buyer with the developer for Condo Assignments Toronto.it would be wise to home buyers to seek legal advice and professional real estate advice.
https://www.mynestsweetnest.com/
 
 
GTA HOMES
Buzzer
reply 19 vote 2
 
 
We have a page for this too! Best of luck with your client. Assignment sales can be a little more complicated but can be a great way to get into the pre-con market without having to wait the normal period for your building to be completed. 

https://www.gta-homes.com/real-estate-info/assignments/
 
 
REG SIMARD
NewBee
reply 1
 
 
What should a deposit on an assignment sale be based on, the total purchase price or the amount payable to the assignor (i.e. deposits + premium [new purchase price less vendors original purchase price])?
 
 
 
Follow

Search

Search Conversations:

 

Check These Out

Fosters Ridge MODERN, House

Fosters Ridge MODERN

www.drhorton.com

House

14104 Cathedral Caverns Ct Conroe Texas

From $316,990 To $474,990

 
The Linden, Condominium

The Linden

thelindenssf.com

Condominium

200 Linden Ave South San Francisco California

From $985,000 To $1,030,000