Selling an assignment condo is not the same as dealing with a resale condo sale. You have to navigate many potential challenges and regardless of present market conditions, it can take time and skill to complete a deal. Depending on the contract you signed with the builder you may not even be allowed to sell the condo on assignment. If they do allow it, see below for a guide on everything you need to know about selling an assignment condo in the GTA.
What is an assignment sale?
An assignment sale is a transaction in which a buyer (the “Assignor”) has purchased a property and then sells their interest in that property to another buyer (the “Assignee”) prior to the property closing. Essentially, as the Assignor you are not actually selling the property; you are selling their contract along with the rights and obligations of the original agreement with the Builder or original seller. While it is possible to have an assignment sale of a pre-construction house or a resale property, assignment sales in Toronto are most common in pre-construction condos.
Assignor
If you are looking to sell your condo prior to the building’s closing date you are the Assignor. In other words the original buyer of the condo unit in the pre-construction phase. In an assignment sale, the assignor is the seller.
Assignee
The assignee is the buyer of the assigned condo and takes over all rights and responsibilities of the original contract.
Make sure that the agent you are working with is familiar with the process of selling an assignment condo. Most agents have no experience in assignment sales, so be careful who you choose to represent your best interests.
Cons of selling your condo on assignment
- The builder may have restrictions on how you can market your assignment condo. Your first step should be checking with the builder or reviewing your APS (agreement of purchase and sale) on what is allowed.
- The pool of buyers is limited due to the substantial amount of cash required.
- Due to the complex nature of an assignment condo sale, the legal fees will be higher than resale condos.
- (as of May 7th, 2022) New tax rules will severely cut into your profits, if any.
Pros of selling your condo on assignment
- Pre-con condos take years to complete and if your lifestyle changes it allows you to walk away, oftentimes with a profit.
- You avoid costs such as land transfer tax, occupancy fees, etc.
- You can get your deposit out earlier and you may even be able to negotiate the profits sooner than the building closing.
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Marketing an assignment condo
Some builders in Toronto and the GTA have restrictions on listing your assignment deal on TRREB’s MLS or online in general. Essentially they are making it hard to impossible to market the property. Ensure that the Realtor you are working with has access to a network of Realtors that work in pre-construction and assignments. I have done several transactions this way and while it is more difficult to market properties this way, as opposed to marketing it online to the masses, it is possible.
Holding onto the property until completion and selling it on the resale market.
This is becoming a more common solution for many since the NEW TAX RULES for assignments came into effect in May 2022 (see details below). Neither option is the clear winner as you will either have to share a large portion of the profit with the government or incur expenses to close the deal. If you decide to complete the deal with the builder, and then sell it on the resale market you will incur the following expenses.
- Monthly occupancy fees (these are charged from the beginning of occupancy to the builder completion date, usually between 3-12 months depending on varying circumstances).
- Development charges and levies. Fees vary, for GTA condos it’s typically capped at around $10,000 – $20,000.
- Legal fees – approximately $2,000
- Status certificate – $100
- Tarion fee – $700
- Reserve fund – $700
- Various admin fees – $2,000
FAQ’s
How does HST work on the builder purchase price?
If you are selling your property on assignment, the assignee (the buyer of the assignment condo) will assume all HST responsibilities for the original purchase price as they will be the ones doing the final closing on the unit. In most cases, HST is included in the builder’s price assuming that the buyer will use the property as a primary residence. Ensure that your Assignment purchase agreement has clear wording on who is responsible for which taxes.
When is the closing date?
In an assignment sale, there are two closing dates. The first closing date is when the sale has been approved by both lawyers and the builder. The second closing date is when the building is registered.
Who pays for the builder assignment fees?
Generally, the assignment fees, if any, are due to the builder upon the builder’s approval of the assignment sale.
When will I receive my profit?
There are typically two options. You’ll either get the profits once the building closes (2nd closing) or when the builder approves the assignment sale. Depending on the market and your Realtor’s negotiating skill you should aim to get the profit as early as possible since the building closing could be a long time out.
New HST assignment rules
As of May 7, 2022, assignment sales in Ontario are subject to HST. When assigning a property to a buyer, the Assignor (seller) will have to pay HST on the profit portion of the proceeds regardless of what their initial intentions were when purchasing in the pre-construction phase. HST does not apply on deposits already made by the Assignor to the Builder, but you have to ensure that your Assignment Agreement of Purchase and Sale must include that the assignment price already includes the deposit.
New Income Tax on assignment sales
Assignment sales are now also subject to income tax. Pre-May 2022 you would only have to pay capital gains tax on the profit, which means you would only pay tax on 50% of the profit. Now 100% of the profit gets taxed and depending on your income that year you will likely fall into a higher tax bracket.
Final Note
All assignment sales should be conditional upon your lawyer reviewing the entire assignment agreement. Part of that will be all of the contents and disclosures of the original Agreement of Purchase and Sale between the Assignor and the Builder.
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