Understanding Condo Assignments in BC’s Presale Market
Updated by Mike Stewart Vancouver Realtor on November 29, 2023
Across Vancouver and British Columbia, condo assignments remain a popular topic regardless of market conditions
This article will delve into the intricacies of selling a presale condo in BC through assignments of contract, providing a comprehensive guide for potential sellers and buyers.
What is as Presale Condo Assignment of Contract?
A condo assignment is a legal transaction where the original buyer of a presale condo (a condo not yet constructed) transfers their purchase rights and obligations to another buyer before the property is completed.
Essentially, it’s a sale of the contract or agreement between the initial buyer and the developer, allowing a new buyer to step into the original buyer’s position.
In the context of presale condos and townhomes, this means that the original buyer is selling their interest in the condo or townhouse before it is built.
Key Terms to Understand
The transactions have their own specific jargon that can be very confusing to the uninitiated.
Here is a list of terms that will make it easier to understand presale condo assignment sales.
- Assignor – this is the original presale condo buyer who purchased the unit from the developer.
- Assignee – this is the purchaser of the assignment from the assignor.
Before we discuss how to sell or assign a preconstruction condo in detail, we need to clarify what a presale is.
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What is a Presale Condo?
A presale condo is a property unit that is sold to buyers before the building has been fully constructed.
Developers in BC often pre-sell condos and townhouses to secure necessary funding for their projects.
Buyers are essentially purchasing a promise that a condo will be built to certain specifications at a future date.
A condo assignment sale is when the original buyer of a presale condo sells their rights and obligations to another buyer through a legal process called assignment of contract.
This process, while complex, can be a lucrative opportunity for both buyers and sellers if navigated correctly with professional assistance.
Step-by-Step Process of a Condo Assignment Sale
Below is a step-by-step explanation of how a presale condo assignment sale works from start to finish. Should you have any questions, feel free to reach out to me at 604-763-3136.
- Developer’s Assignment Policy Check: Before anything else, the assignor’s real estate agent should verify if the developer permits assignments. It’s also essential to determine whether the developer allows the public marketing of the assignment.
- Marketing the Assignment: Once permissions are confirmed, the assignor’s Realtor will market the property. Depending on the region and developer’s policies, this could be on the MLS or through other channels. For instance, in the Lower Mainland, many developers near Vancouver prohibit MLS listings for assignments, but it’s more common in places like the Fraser Valley.
- Receiving and Reviewing Offers: When a potential assignee shows interest, their Realtor will prepare and submit an offer to the assignor’s Realtor. The assignor and their agent will then review this offer, potentially leading to negotiations.
- Securing an Accepted Offer: After negotiations, if both parties agree on terms, they’ll have an accepted offer in place. This doesn’t mean the sale is complete, but it’s a significant step forward.
- Developer Approval: With an accepted offer, the assignor’s Realtor must submit it to the developer for review. Developers usually have a dedicated team or work with a project marketing company to review these offers. They’ll assess the assignment and present it to the developer for final approval. This step often involves paying an assignment fee to the developer. More on this below.
- Finalizing the Assignment Sale: Once the developer gives the green light:
- The assignor pays the developer any required assignment fees. More on this below.
- The assignee reimburses the assignor for their initial deposits.
- The deposits that the assignor originally gave to the developer are then transferred to the assignee.
- After this occurs, there usually is wait before completion of the property occurs.
- Completion of the Sale: The assignee, now stepping into the shoes of the original buyer, will finalize the property’s purchase. Once the development is complete, they’ll become the official owner of the condo or townhouse.
- Understanding Assignment Fees: It’s crucial for both parties to be aware of any assignment fees. These fees, charged by the developer, can range significantly. They’re typically outlined in the original presale purchase contract and need to be settled before the developer approves the assignment sale.
Condo Assignment Contracts Require Developer Permission
Condo assignments of contract are unique in that the permission of the original developer is required in writing in order for the transaction to go forward.
As mentioned above, condo assignment purchase contracts are essentially 3 way contracts that require the written consent of the assignor (original purchaser), the assignee (new buyer), and the developer.
The developer is not required to give permission and it will state that the developer can withhold permission of an assignment for any reason.
In practice, developers often do not permit assignments or may stop allowing assignment sales and marketing unexpectedly.
The key is to work with a Realtor who knows assignment sales who has the connections and ability to find out the developers current views on allowing assignments in their projects.
We can help with this as we sell assignments regularly and have deep long term connections relationships with all of the major developers and marketing companies in BC.
What is an Assignment Fee in BC?
An assignment fee is a sum of money developers charge to allow an assignment of contract to go forward.
Developers typically charge an assignment fee of anywhere from a few dollars up to 5-10% of the assignment purchase price.
Payment of the assignment fee is required before a developer will sign the assignment sale contract.
The amount the developer charges for an assignment is typically laid out in the presale purchase contract.
The assignment fee needs to be paid to the developer when the developer gives permission to allow the assignment of contract to go forward.
Developers will often allow lower assignment fees for assignments that happen between immediate family members.
Who Pays Assignment Fees?
Assignment fees are typically paid by the assignor to the developer. The assignment fee sometimes can be paid by the assignee if the assignor agrees to it in the contract or the assignor is not able to pay fee.
Please note who pays the assignment fee is negotiable in the negotiations between the assignee and assignor before there is an accepted offer.
When are Assignment Fees Paid?
Assignment fees are paid once the assignee and assignor have an accepted offer and the assignee has removed their subject conditions on the contract of purchase of sale.
The assignment fees is only payable if the developer gives permission for the assignments. If the developer does not give permission to the assignment, the assignment fee is not payable.
Condo Assignment Deposits Explained
Once the developer gives permission for the assignment sale in writing, the assignee (assignment buyer) will reimburse the assignor (seller of the presale/original buyer) for the original deposits paid to the developer by the original buyer (assignor/seller of the presale).
The deposits held by the developer will have their ownership transferred or “assigned” from the assignor (original presale buyer/seller) to the assignee (assignment buyer).
How are Condo Assignment Deposits Held?
Assignment sale deposits are typically paid into by assignee’s buyers agents trust account once the assignee removes subjects on their assignment purchase contract.
Here are two options for the funds that an assignee reimburses an assignor for their original deposits held by the developer:
- Released to the assignor upon receiving written permission from the developer for the assignment making the assignment contract firm and binding on all parties.
- Held in a trust account to be released to the assignor upon completion of preconstruction property.
Why Assign a Presale Condo?
There are several reasons why an original buyer might want to sell their presale condo.
Market conditions may have changed, making it profitable to sell the contract for a higher price than the original purchase price.
Alternatively, the original buyer’s personal circumstances may have changed, making it difficult or undesirable to complete the original purchase.
Legal Framework for Assignments in BC
In BC, the Real Estate Development Marketing Act (REDMA) governs the sale of presale condos and assignments of contract.
Under REDMA, developers must provide a disclosure statement to presale condo buyers that includes information about the developer, the development, and the rights and obligations of the parties.
This includes the buyer’s right to assign the contract and any restrictions or requirements the developer may have regarding assignments.
When buying a presale condo assignment, it is imperative that the purchaser receives and reviews the disclosure statement and all of the amendments to the disclosure among other documents to make an informed decision about a purchase.
Condo Assignment Risks
Presale condo assignments are extremely complex transactions.
The considerable risks of assignments can be avoided by hiring a qualified Realtor, tax accountant, and real estate lawyer.
Below is an explanation of the risks for both assignors and assignees in an assignment sale.
Risks for Assignors:
- Developer’s Discretion:
- Even if the original purchase agreement allows for assignments, the developer can withhold permission. If the assignor has already made plans based on the assumption of selling the assignment, this can lead to significant disruptions.
- Financial Liability:
- If the assignee defaults or fails to complete the purchase, the assignor might be left to complete the original purchase. If the assignor’s circumstances have changed, they might not be prepared or financially capable of doing so.
- Condo Project Does Not Complete or is Cancelled:
- In BC, a presale condo might get cancelled due to unforeseen construction challenges, financial difficulties faced by the developer, changes in market conditions, failure to secure necessary permits, or legal disputes. Though project cancellations rare, it can happen and an assignor may face legal action from assignee who has paid a premium to the assignor for a condo that does not get delivered.
- Tax Implications:
- The Canada Revenue Agency (CRA) might view the sale as a business transaction rather than a capital gains transaction, leading to a higher tax liability for the assignor. Check in with a qualified tax accountant before thinking of selling a presale condo in BC.
- Reputation with Developers:
- If an assignor frequently engages in assignment sales, they might develop a reputation with developers. This could impact their ability to purchase presale condos in the future, especially if developers view them as speculators.
Risks for Assignees:
- Incomplete Information:
- Since the property isn’t built yet, the assignee is buying based on plans and promises. The final product might differ from initial plans, leading to dissatisfaction.
- Market Volatility:
- If the real estate market declines after agreeing to the assignment purchase, the assignee might end up paying more than the market value by the time the condo is completed.
- Financing Challenges:
- Securing financing for assignment sales can be more challenging than for traditional real estate purchases. Some lenders might be unfamiliar with or wary of the complexities of assignment sales.
- Potential Additional Costs:
- The assignee might be unaware of additional costs or changes made by the developer after the original purchase agreement. This can lead to unexpected financial burdens.
- Legal Implications:
- If the assignor doesn’t provide all necessary disclosures or if there are discrepancies in the assignment agreement, the assignee might face legal challenges or complications.
- Condo Project Does Not Complete or is Cancelled:
- In BC, a presale condo might get cancelled due to unforeseen construction challenges, financial difficulties faced by the developer, changes in market conditions, failure to secure necessary permits, or legal disputes. Though project cancellations rare, it can happen and an assignee who has paid a premium to the assignor may not get a condo.
Presale Condo Assignment Sales FAQ
- What is a condo assignment?
- A condo assignment is the legal transfer where the original buyer (assignor) of a presale condo sells their contractual rights and obligations to another buyer (assignee) before the property’s completion.
- How does a condo assignment differ from a regular condo sale?
- Unlike a regular condo sale where the property is already built and ownership is transferred, a condo assignment involves selling the contractual rights to a condo that hasn’t been constructed yet. Essentially, it’s the transfer of a promise for a future property.
- Why might someone consider a condo assignment sale?
- There are various motivations. Market conditions might make it profitable to sell the contract at a higher price than the original purchase. Alternatively, the original buyer’s personal circumstances might change, making it challenging or undesirable to complete the original purchase.
- Are there specific legal regulations governing condo assignments in BC?
- Yes, in BC, the Real Estate Development Marketing Act (REDMA) oversees the sale of presale condos and condo assignments. It ensures buyers are informed about their rights, the developer, and the development.
- Is the developer’s permission mandatory for a condo assignment transaction?
- Absolutely. The original developer’s written permission is essential for a condo assignment. It’s worth noting that developers can withhold this permission for various reasons.
- What exactly is an assignment fee in the context of condo assignments?
- An assignment fee is a charge set by developers, which can range from a nominal amount to up to 5-10% of the assignment purchase price. This fee must be paid before the developer approves the condo assignment sale.
- How are deposits managed in condo assignment sales?
- After the developer approves the condo assignment in writing, the assignee reimburses the assignor for the initial deposits made to the developer. The ownership of these deposits then transfers to the assignee.
- Is it crucial to collaborate with a Realtor experienced in condo assignments?
- Highly recommended. A Realtor with condo assignment expertise will offer invaluable insights and connections, ensuring a more streamlined process for all involved.
- Can developers alter their position on permitting condo assignments?
- Yes, developers’ views on allowing condo assignments can change. They might halt assignment sales or marketing without notice, emphasizing the importance of staying informed and working with knowledgeable professionals.
- Before entering a condo assignment agreement, what should I consider?
- It’s essential to grasp the legal and financial implications, seek advice from a real estate professional, and acquaint yourself with the Real Estate Development Marketing Act (REDMA). Proper research, understanding, and expert guidance are pivotal for a successful condo assignment transaction.
- Who typically pays the Assignment Fee?
- The assignor usually covers the assignment fee to the developer. However, in certain situations, especially if the assignor faces financial challenges, the assignee might bear this cost.
12. Are Presale Condo Assignment Legal?
- Yes. Presale condo contract assignments are legal, despite some less informed politicians ruminating on potentially banning them.
Pro Tips for Navigating Condo Assignments
- Understand the Contract and Disclosure Statement:
- Before entering into an assignment agreement, thoroughly review the original purchase contract and presale disclosure statement. Look for any clauses or restrictions related to assignments to ensure you’re not breaching the agreement. The disclosure statement is designed to allow a buyer (either assignee or assignor) make an informed decision about a purchase. Read and understand it.
- Engage Professionals:
- Work with a Realtor experienced in condo assignments. They’ll have insights and connections that can be invaluable. Additionally, consult with a real estate lawyer to ensure all legalities are addressed.
- Research the Developer:
- Understand the reputation of the condo’s developer. A reputable developer is less likely to cancel a project or deny assignment requests without valid reasons.
- Anticipate Fees:
- Be aware of the assignment fees charged by developers. These can vary and might impact the profitability of the assignment. This can also have an impact on the negotiating strategy if the assignment fee is quite high or low.
- Stay Updated on Market Conditions:
- The real estate market can be volatile. Regularly assess market conditions to determine the best timing for an assignment sale.
- Clear Communication:
- Ensure open communication lines with both the assignee and the developer. Misunderstandings can lead to complications or lost opportunities.
- Document Everything:
- Keep a record of all communications, agreements, and transactions related to the assignment. This can be crucial if disputes arise.
- Consider Tax Implications:
- Consult with a tax professional to understand before doing anything to understand any potential tax liabilities or benefits arising from the assignment sale or purchase.
- Plan for Financing Challenges:
- If you’re an assignee, understand that not all lenders are familiar with assignment sales. It might be more challenging to secure financing, so start this process early.
- Stay Informed on Legal Regulations:
- Familiarize yourself with the Real Estate Development Marketing Act (REDMA) and any other local regulations governing assignments in your area.
By following these pro tips, both assignors and assignees can navigate the complex world of condo assignments with greater confidence and success.
Benefits of Condo Assignments
Condo assignments offer a range of advantages for various parties involved, from the original buyer to the new buyer and even the developer. Here’s a breakdown of the benefits:
- Flexibility for Original Buyers: Life is unpredictable. Financial situations, job relocations, or changes in family dynamics can alter one’s ability or desire to complete a presale condo purchase. Assignments provide an exit strategy for original buyers who no longer wish to, or cannot, finalize the purchase.
- Potential for Profit: If the real estate market has appreciated since the original purchase, the original buyer (assignor) might sell the assignment for more than their initial purchase price, earning a profit before the condo is even completed.
- Opportunity for New Buyers: Assignments can be a golden opportunity for new buyers (assignees) to step into a contract at potentially below current market prices. They might also get access to units in sold-out developments or in prime locations that are no longer available directly from the developer.
- Avoiding Marketing and Sales Costs: For developers, allowing assignments can mean that they don’t have to re-market and sell a unit if the original buyer backs out, saving them potential additional costs.
- Immediate Access to New Developments: New buyers can gain access to developments that are closer to completion, reducing the waiting time compared to buying a new presale.
- Financial Liquidity for Original Buyers: By selling their rights through an assignment, the original buyer can free up any deposits or funds tied to the presale condo, aiding their financial liquidity.
- Reduced Risk of Project Cancellation: New buyers stepping into assignments might do so in projects that are further along, thereby potentially reducing the risks associated with project delays or cancellations.
Understanding the benefits of condo assignments can help both original and new buyers make informed decisions, ensuring that they leverage the opportunities this unique real estate transaction offers.
Selling a presale condo in BC through an assignment of contract can be a complex process, but it can also be a profitable venture if done correctly. It allows the original buyer to potentially make a profit before the completion of the condo, and it provides an opportunity for another buyer to step into the original buyer’s shoes and benefit from any increase in the property’s value.
However, it’s important to understand the legal and financial implications of such a transaction. The Real Estate Development Marketing Act (REDMA) provides a regulatory framework for these transactions, but it’s crucial to consult with a real estate and tax professional and a lawyer to navigate the process effectively.
In conclusion, selling a presale condo in BC through an assignment of contract is a unique aspect of the BC real estate market. It offers opportunities for profit and flexibility for buyers, but it also requires careful consideration and understanding of the process. As with any real estate transaction, due diligence, knowledge, and professional advice are key to success.