Pre-construction sales of residential property are defined by the fact they are real estate transactions on property not yet built, or where construction is not yet finished. A Developer markets a property for pre-sale and usually sells a certain number of units before construction will commence. If you’ve bought a presale condo as an investment, and are now looking to sell it as an Assignment, what do you need to know?
Interest Rates
With interest rates on the rise over the past year, selling an Assignment has become more difficult to achieve. The Bank of Canada rate jumped from 0.25% in March 2022 to 4.5% in January 2023. These increases occurred in eight rate increases over that time. As such, chartered banks and other financial lenders have raised their prime lending rates and mortgage rates accordingly.
Where presale condos are usually sold on Assignment for more than the original purchase contract price, this is becoming more difficult as interest rates rise and the buyer pool declines. Prices have dropped and profit margins are down as a result.
Hire A Realtor
It is always a good idea to hire a real estate professional to assist with the sale of an Assignment. Even though you likely can’t put the unit on the Multiple Listing Service ®, a real estate agent has contacts and other resources that may facilitate the sale much quicker than trying to do it on your own. A Realtor can assist with the negotiations and paperwork, although often, you’ll need to use the Developers document for the Assignment of the Purchase Contract. The Developer will also need to approve the Assignment since completion of the original sale has not yet taken place.
As the seller of an Assignment, you’ll be responsible for real estate commissions and legal fees, so make sure you understand what these are, from the start.
Hire A Lawyer
Have your attorney review the documents to ensure the transaction works to your benefit. This doesn’t just mean you are making a profit, but that you are protected as much as possible against potential issues and defaults by the new buyer. Navigating an Assignment can be simple as long as you have experienced professionals in your corner.
Challenges
Tax implications. Always check with your accountant when considering a large financial transaction of this nature. Any profit will, generally, be taxable, although, if you sell the Assignment at a loss, the loss can be written off.
Assignment fees. The original Contract will, in all likelihood, have a clause which details the Assignment Fees payable to the Developer in the event the Contract is Assigned to a third party. This can be anywhere from a few hundred dollars to several thousand dollars and is generally a percentage of the original purchase price. Factor this into your decision when thinking about selling a presale Assignment.
As the original purchaser, you may remain liable for the performance of the contract if the Assigned buyer fails to complete or defaults on the Contract in some way. Always get legal advice regarding your potential exposure before committing to the Assignment.
Your real estate professional, attorney, and accountant are the most valuable resources you have when it comes to selling an Assignment. Always speak with each of them about the benefits and pitfalls you may face, so you can make the best decision for your personal situation.
Sell Your Pre-Construction Assignment in Current Market Condition With AssignToday. Contact us today!
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