Purchasing a Unit Before a Condo is Built
I’ve already gone through the Top 13 Things to Know about Buying a Pre-Construction Condo, but today I want to go through the details of Assignment of Contracts, which is another form of purchasing a new development.
An Assignment of Contract is a purchase where a Buyer purchases the rights to an accepted offer on a pre-construction condo from a Seller who had previously secured that accepted offer with the Developer. Since the development is not yet completed, the contract is the only thing that can technically be sold, so when the contract is assigned via the purchase, the Buyer becomes the new purchaser on the original contract.
Here are a few details you need to know about Assignments of Contract:
- Assignments of Contract typically only happen in sold out pre-construction building (a current example is like Kensington Gardens at 2220 Kingsway) because the Developer needs to approve/allow the assignment of the contract, and they typically only do that when all units are sold out.
- Typically, Sellers will sell the rights to their contract for a higher price than what they bought (called the “lift”). This lift can’t be mortgaged, so you have to have enough cash to cover the cost of the lift, as well as to cover the initial deposit they put down (which is typically between 10% and 25% of the original price, but this varies).
For example, say the Seller originally bought a unit for $322,145 with a deposit of $80,536 (25%). With a current asking price (i.e. assignment of contract price) of $388,000, the Buyer would need to have enough cash to cover the $65,855 “lift” in price (difference between original and current asking price), as well as the $80,536 deposit the Seller has already paid, which equates to $146,391 needed in cash to purchase the condo. The rest of the purchase price, which is $241,609, can be mortgaged (assuming the Buyer qualifies, of course). Here’s another blog post I wrote on Assignment of Contracts for New Construction and how you calculate the cost.
*** Note that when I say cash, I mean non-mortgaged funds, pulled from your Bank Account typically via bank draft.
Every unit will have different numbers depending on what the first Buyer put down as a deposit and as a purchase price.
- The Buyer has to agree to all of the Sellers previously agreed upon upgrades and choices, i.e. if the Seller choose the “light” colour scheme for the condo interiors, or if the Seller had purchased an extra parking spot or storage locker.
- The Buyer has the right to review all the documentation the original Seller received form the Developer, including the Disclosure Statement and any Amendments, the original contract and the interior details.
- The Buyer typically needs to give the amount of the deposit to the Seller upon a firm contract, and the “lift” upon the completion of the building, but details of these payments will need to be made clear in the contract
- The Buyer understands that all other faucets of a pre-construction purchase would apply to them, including completion dates (and potential changes), warranties, etc.
- Assignment of Contract Sales can be negotiated when it comes to the purchase price, though dates are at the discretion of the Developer and previously decided inclusions must be included in the contract (unless the Developer agrees to change the contract for the new Buyer).
- A specific type of contract is needed for the purchase
At the end of the day Assignment of Contracts are a tough purchase for most Buyers since they need a lot of cash to purchase the unit. Don’t hesitate to let me know if you have any questions about buying new developments or Assignments of Contract.
