With estimates of over 150 new condominium projects under construction in the GTA, many bought by investors, and many homes and subdivisions being developed, there’s a lot of interest in flipping (assigning) builder agreements. While quite worthwhile to both buyer and seller, this involves a little more work and can get a little tricky. To assist in the process we’ve posted a detailed Assignment Guide on our website, but these are the basics you need to know:
Why Assign? Advantages to Seller/Assignor: Usually do not have to pay the builder’s closing costs and land transfer tax; do not have to pay the GST/HST rebate back to the builder; avoid the carrying costs (mortgage, maintenance fees, taxes, etc.) for the time between listing the property and selling the property; get money out of the property. Advantages to Buyer/Assignee: May get a price advantage over current properties on the market; will get a brand-new home and possibly make finish selections.
Can You Assign? Most new home agreements prohibit assignment. There are exceptions where the builder has specifically initially agreed, but this is unusual and most contracts do not allow it. Moreover, if the buyer in any way tries to sell, assign, or list for sale (on the MLS system or otherwise), the buyer is in breach/default and the builder is entitled to cancel the deal and keep deposits. It is very important not to list or enter into this type of agreement without knowing if it is allowed. It is still possible to obtain consent even if the contract does not include a clause entitling the original buyer to make an assignment as many builders will still allow it, for a fee, even though it is not specifically stated in the contract. You must ask through the sales office or lawyer’s office.
Negotiating the Deal: There is more to think about on assignments. The essential elements are: Does the new price include the builder’s adjustments to be charged on closing? In most assignments the new buyer takes over the entire contract and pays the builder’s adjustments. However, sometimes the new buyer and original buyer agree to split adjustments. Who pays the assignment fee? In most instances the original buyer pays the fee. How much money will the seller/assignor get and when? Usually the original buyer has paid deposits to the builder under the contract. When the contract is assigned these deposits are taken over by the new buyer. The original buyer usually wants his deposits back and his profit on assignment. From the original buyer’s perspective, the more funds that he can obtain before final closing the better. The way that the balance is usually struck is that the original buyer receives the deposits he has paid to the builder back on assignment and waits for final closing to obtain his profit. Again, however, it is important to note that each deal is different and that this can be structured in any way that the parties agree. Who will get the interest on the deposits paid by the original buyer? This is usually the new buyer.
Conditions: It’s critical to make the deal conditional on: (1) the builder’s signed consent, (2) a review of the original Builder’s Agreement, (3) a review of the actual Assignment Agreement by each side’s lawyer (4) financing—use a rep experienced in these deals.