Assignment of Contract Guide: What is it?
It seems no matter what area you look in Vancouver there’s new condominium projects being built. From West Vancouver to Coquitlam it’s become so common it now defines Vancouver’s skyline. So what makes them so popular?
In this article we will discuss what happens when a purchaser is interested in selling their pre-sale condo before completion of the project: This is called an assignment of contract.
Understanding Pre-Sale Purchases
A Pre-sale purchase is essentially buying a contract or the rights to a future development. The legal contract, purchase and sale document is different and more complex than a pre-sale contract.
The developer produces a document called ‘ Developer Disclosure Statement’ stating the terms and conditions of the projects. A few definitions prospective buyers of pre-sale need to know:
Completion date: The date the expected completion of the project is set. The challenge is that there are many factors that can affect the completion dates outside of the developer’s hands: permits, city approval, inspections, financing etc.
Outside date: The date in which the developer has to deliver the project to the buyer or the buyer has the right to legally walk away from the contract.
It is important to be aware of the risks and the typical process of a new condo development as these things can sometimes take years to complete, such as:
- What if the developer cannot complete
- The developer’s rights to make design changes
- Liabilities and scope of exposure to unknowns
Financing Pre-Construction: A Buyers Consideration
Traditional mortgage approval is a commitment for a rate and time frame of 3-4 months.
- When buying a pre-sale assignment of contract buyers overlook the fact that the mortgage approval will be closer to completion, which can be 2-3 years after committing to the deal
- There are few programs available, one of which is with RBC, that allow the buyers to secure guaranteed financing ahead of time.
Here are a few items to think about:
- What happens if interest rate changes?
- What happens if the purchaser’s financial position changes (loss of job for example).
You’ve purchased a pre-sale Condo and need to sell before completion
This transaction can ONLY be done in the form of an Assignment of Contract.
- An assignment is a sale of the contract to another person.
- You ‘sell’ the right to complete this deal to another person, at times, for a profit.
Assigning the contract doesn’t relieve you from the responsibility if the new buyer fails to close.
The Challenges a Realtor Faces with Marketing & Selling Assignments:
- It’s not a physical unit, its a contract, a concept on paper
- Prospective buyers cannot view it.
- The developer always reserves the right to approve or not approve the assignment of the contact.
If you take 1 thing away from this blog let it be this: Review the original contract to ensure the developer allows assignments.
Making that assumption without confirmation can be extremely discouraging. The developer usually requests a fee (between 1-3 percent of the assignment amount) in order to approve it.
How Vancouver Realtors Advertise Assignment of Contracts:
If the developer allows, the condo can go on MLS and be promoted to the real estate community just as any other listing. There are also other methods to get the word out such as internal databases of realtors: We have a database of active realtors we can reach out directly to notify them on assignment opportunities.
Social Media can also be a free method to let potential buyers that your pre-sale condo is up for sale. By implementing popular neighbourhood #hashtags you can get a lot of eyeballs on your listing.
If you have a budget to advertise then PPC marketing targeting the name of the development might also work. Just remember you have to have a website or URL to send interested parties to.
Here at Jacob & Jacky have dealt with assignments of contacts many times, in fact in our neck-of-the-woods its quite common. We’re keenly aware of the common pitfalls, red flags and what developments have the best reputation.
Before you choose to place your pre-sale condo up for sale, or purchase one that’s being offered, get some professional advice by booking a consultation below.