Selling a Pre-Construction Condo
To help you understand whether selling your new-build condo is right for you, we outline the assigning process through which these types of condos are sold.
By Emily Southey | 8 minute read
Do you own a pre-construction condo in Ontario? Pre-construction condos can be excellent investments, whether you’re looking to rent it out or live in it once it’s complete. But sometimes things change, and you might decide that the pre-construction condo you purchased years ago isn’t the right fit for you anymore. The good news is that even if the unit has yet to be completed (meaning you don’t actually own it), you might still be able to sell it through a process known as assigning. Keep reading to learn more about selling a pre-construction condo in Toronto.
Before we dive into the process of selling a pre-construction condo, let’s take a moment to consider what a pre-construction condo is. Depending on where you’re looking to buy real estate in Canada, you may have the option of purchasing a property that is already built (referred to as a resale property) or one that is in the process of being built (referred to as a new-build or pre-construction property). If you choose the latter, you are typically buying the unit directly from the builder or developer, and you are buying it before it has been constructed. This means that the unit you purchase may not be livable for some time (possibly several years). Since the building does not yet exist, developers usually create detailed virtual renderings out of the plans and a model unit for prospective buyers to tour. There are many benefits to purchasing a pre-construction condo, such as the fact that they are often cheaper to purchase than resale condos. In addition, when you buy a new-build condo, you might be able to customize certain details of the unit, and you will also be the first person to live in it, which can be appealing. That said, pre-construction condos can also be risky as you haven’t had a chance to see your specific unit in person, and construction projects can be delayed by months if not years. A delayed project could lead to you renting for longer than you intended or prevent you from earning rental income for a longer period. Plus, if you decide to sell your condo before construction is complete, the process can be complicated (which we will detail below). Overall, buying a pre-construction condo comes with both pros and cons, so before doing so, we recommend carefully considering your personal needs, lifestyle, and how long you intend to keep the condo before selling.
Can I Sell a Pre-Construction Condo?
On to the main question this post intends to tackle — can you sell a pre-construction condo? This is a common question and the short answer is yes, it is possible to sell a condo that has yet to be built. However, it can be difficult depending on the circumstances. To help you understand whether selling your new-build condo is right for you, we outline the process through which condos of this kind are sold, a process known as assigning or assignment sales.
Selling a pre-construction condo is done through a process called an assignment sale. Any time you sell a unit before it is finished being built, it is called assigning. Why? This is due to the fact that you are, in effect, assigning the contract or the right to take possession of the unit at a future date to another person, as opposed to outright selling the property to that person.
When you buy a pre-construction unit, you gain the rights to 100% of that unit just for making a down payment. Unlike when you buy a resale home, down payments for pre-construction units are not paid upfront. Rather, they are paid over the course of construction according to a predetermined deposit structure. The most common amount for a pre-construction condo down payment is 20%, and a typical deposit structure might look like this:
- $5,000 down payment upon closing the deal
- Balance of 5% in 30 days
- 2.5% in 120 days
- 2.5% in 180 days
- 2.5% in 420 days
- 2.5% in 540 days
- 5% on occupancy
In terms of the mortgage and closing costs, when you sell your unit before it is complete (that is, assign your unit), you don’t have to worry about either. This is because mortgage payments and closing costs like utility fees, land transfer tax, occupancy fees, and more are not paid until construction is complete. Therefore, selling your condo before this happens can
“Selling a pre-construction condo is done through a process called an assignment sale. This is due to the fact that you are, in effect, assigning the contract or the right to take possession of the unit at a future date to another person, as opposed to outright selling the property to that person.”
When can you assign a pre-construction condo?
When you can sell (or assign) your pre-construction condo depends on the agreement you signed with the developer. The good news is that most development projects allow for assignments. However, there may be some restrictions on how soon after purchasing you can sell it, as well as fees associated with assigning. Assignment fees vary widely and can be anywhere from $5,000 to $20,000, and sometimes even more than that. These fees can usually be negotiated, but there is never a guarantee that the developer will agree to reduce the fee. Although uncommon, some developers offer free assignments, though even these typically come with legal fees of between $500 and $1,500. Overall, sellers should be prepared to pay a hefty fee if they want to sell their pre-construction condos. Budgeting will be important to determine whether selling your pre-construction condo is worth it given the fees. Please note that not all projects allow for assignment so it’s important to ask about this before purchasing a pre-construction condo.
How do you assign a pre-construction condo?
The process of assigning a pre-construction condo is not all that different from selling a resale property. The process involves marketing the property to attract buyers, negotiating an offer, and making a deal. The main element that distinguishes the assigning process from a typical home sale transaction is the deposit structure and when and how the deal closes. It’s also worth noting that many developers prohibit sellers from listing an assignment sale on MLS or other online real estate marketplaces. Therefore, you will need to find other, more creative ways of attracting buyers, which is where hiring a realtor comes in handy.
How to Sell a Pre -Construction Condo Through an Assignment Sale
Ready to sell your pre-construction condo via an assignment sale? Keep reading for a step-by-step guide on how to do this.
1. Contact the developer
The first step is to get approval from the developer to assign your unit. As mentioned, most developers allow owners of pre-construction condos to assign their units, however, not all do. Therefore, it’s important to reach out and get more information about what is and isn’t allowed. Assuming the developer allows assignment sales, be sure to get further information, such as the fees that come with assigning your condo and any rules or restrictions, such as what websites or platforms you may not be allowed to promote it on. It is also a good idea to ask about the process of signing a new agreement once you’ve found an eager buyer.
2. Market your assignment
Once you’ve gotten approval from your developer, it’s time to market your property and attract potential buyers. Since you likely will not be allowed to advertise your unit on the MLS or other real estate marketplace websites, we recommend contacting a realtor for help. They can reach out to their personal buyer pool and implement other effective marketing strategies to get your unit in front of as many eyeballs as possible.
3. Review and negotiate offers
As offers start to pour in, you should be prepared to review each promptly and respond to or negotiate with the ones that interest you. If you hire a realtor, they can negotiate on your behalf and advise you on the best strategies to employ, as well as which conditions or offer prices are worth accepting.
4. Sign the agreement and accept the first deposit
Step 4 is to finalize the agreement by signing on the dotted line and accepting the buyer’s first deposit. This deposit is typically held in trust in a lawyer’s account or a real estate company’s account, but it will be transferred to you once the deal is done.
5. Have a lawyer review all paperwork
The next step is to hire a real estate attorney to review all the paperwork. This is an important step, no matter what type of home you are selling. A lawyer will review the purchase agreement and all supporting documents (there are often even more documents in an assignment sale compared to a traditional home sale).
6. Get approval from the developer
The second to last step is to have the buyer (or assignee) approved by the developer. With most assignment sales, the developer will have stipulated that they get to approve the new buyer. This process will involve confirming that the assignee has proof of financing to mitigate the odds of something going wrong after closing.
7. Accept the second deposit
The final step to selling your pre-construction condo is to accept the second deposit. Assuming the assignee was approved by the developer, they will provide the second deposit, which should cover the entire deposit made by you, the original buyer. Typically, the seller will not receive the profit until the closing of the unit.
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Frequently Asked Questions
Do you have to pay closing costs if you sell a pre-construction condo?
You do not have to pay closing costs if you sell a pre-construction condo before it is complete. This is because when you buy a new-build condo, you only cover the down payment — mortgage payments and closing costs don’t come into play until construction is complete. Therefore, by selling your condo before it has been finished, you can avoid paying mortgage payments or closing costs, which can also make the sale less complicated.
Should you hire a realtor to sell a pre-construction condo?
Yes, it is strongly recommended that you hire a realtor to help you sell your pre-construction condo. Generally speaking, realtors have extensive knowledge of the local market and can help promote your property, guide you through the selling process, and negotiate on your behalf. But beyond that, since many developers forbid sellers from listing their properties on the MLS or other online real estate marketplaces, having a realtor who can come up with creative marketing strategies and execute them on your behalf can give you a huge advantage.
Can delays in the development of the condo affect the price at which you can sell your pre-construction condo?
The construction of your condo unit being delayed should not have a significant impact on the price at which you can sell it.