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:
Original Deposit By Buyer One (assignor) On Signing Contract with developer
$100,000
Plus: Difference in Assignment Price from Original Price
$100,000
Total Cost by assignee to Purchase the Assignment
$200,000
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
Original Sale Price
$400,000
Original Deposit Paid by assignor & transferred to assignee
$100,000
Funds required by assignee to Complete Sale in 2008 (payable to Developer)
$300,000
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.
