Below is a brief explanation & summary of purchasing a property by way of an assignment. It is different from a "typical" real estate transaction. In an assignment purchase you are buying the contract from the original purchaser and do not own the property until the unit is physically ready to be occupied.
Summary of what transpires in an assignment
The original purchaser buys a condo from the Developer in 2006 for $400,000 with a total down payment of 25% ($100,000), completion is scheduled for 2008.
In 2007 the original purchaser (assignor) re-sells or assigns the property to another party (assignee) for a sale price of $500,000.
To purchase the assignment the new buyer (assignee) must pay the following in order to assume the assignment contract:
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Original Deposit By Buyer One (assignor) On Signing Contract with developer
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$100,000
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Plus: Difference in Assignment Price from Original Price
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$100,000
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Total Cost by assignee to Purchase the Assignment
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$200,000
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When the property is ready for occupancy in 2008 the new buyer (assignee) shall complete the sale with the Developer under the same terms and conditions per the original purchase and sale agreement. Please Note: In the event buyer two (assignee) does not complete the said transaction, the developer may go after buyer one (assignor). In this case buyer one should seek Legal Advice.
In 2008 when property is complete and ready to occupy, the following breakdown occurs
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Original Sale Price
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$400,000
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Original Deposit Paid by assignor & transferred to assignee
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$100,000
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Funds required by assignee to Complete Sale in 2008 (payable to Developer)
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$300,000
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Therefore the total cost for the property is $500,000 with $200,000 due immediately (payable to Original Purchaser or assignor) and $300,000 (payable to the Developer) due at completion. Assignment contracts can either complete within 1 month of writing a contract or when the developer finishes the building and the suite is ready for occupancy (it is negotiable). Please discuss this with the Listing Agent.
Please note, the above information is simply a guideline. Any buyer who enters into an assignment contract is highly recommended to seek independent Legal Advice. Please also take note: A buyer should be qualified by a Mortgage Broker before writing an assignment contract - these contracts are firm & binding. There can be serious consequences and loses to buyer #2 (assignee) if he cannot complete on the contract.
Tips on buying a condo assignment
Monday, July, 21, 2008
The B.C. office of the superintendent of Real Estate has issued an updated information bulletin for those buying assignments for a new condo or other residential property.
The alert is provided to consumers for information purposes only. It is important for purchasers to obtain appropriate professional real esate and legal advice prior to entering into an assignment agreement.
Things to consider before buying an assignment:
- Consider whether an assignment is permitted under the purchase contract. Some developers do not permit assignments. Others may require the developer's consent and a substantial assignment fee;
- Review the developer's Disclosure Statement and thoroughly review all documents related to the sale;
- Obtain advice from a lawyer and/or real estate professional prior to entering into an assignment contract;
- Consider all your options, such as whether the deposit and "lift" will be paid to the assignor upon signing the agreement or held in trust until some later date. Generally, it is preferable from the assignee's perspective if money is released to the assignor only after the unit is built and title is being transferred; and
- Confirm in the assignment agreement how the assignor will meet all of the requirements for a valid assignment, and set out what will happen if there is ony breach of the assignment agreement or the pre-sale contract.
For further information on real estate transactions and contact information for government offices and industry associations, visit www.fic.gov.bc.ca; or the Homeowner Protection Office website at www.hpo.bc.ca.
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