The art of buying and selling a condo before it is even built – otherwise known as ‘flipping’ or assignments – has rocketed in recent years, particularly in Vancouver and the Lower Mainland.
Where such sales were unheard of a few years ago and were limited to a few Realtors in the know, the huge hike in apartment developments has spawned a new breed of investor looking to snap up a pre-sale from developers and then flip it before the completion date.
Responding to a significant rise in the phenomenon called ‘assignment sales’, www.AssignmentsCanada.ca, was established in 2004 to advertise an increasing number of assignment listings.
An assignment sale goes like this: Unlike a regular apartment purchase where the physical property is bought at the time of sale, the seller (‘assignor’) transfers to the buyer (‘assignee’) the obligations and contractual rights to the apartment before the completion of the building. Upon completion, the assignee gains the title deeds from the building’s developer. And in times of a rising property market, it is often possible to achieve a significant profit even before a brick has been laid, through an assignment sale.
“There’s a definite niche for these types of sales – and buyers who have missed out on pre-sales need a forum where they can search for property assignment sales in the building or areas of their choice,” says Nicola Way, founder of AssignmentsCanada.ca.
“Indeed I started the company because I missed out on buying a condo in a desirable tower and could not find anywhere to look for a possible assignment sale. With cranes dominating our city skyline and demand continuing to outstrip supply, an assignment purchase may be the only way to get your hands on a hot property in a sought-after area.”
Key considerations in the success of an assignment sale are location, accessibility, amenities and the opportunity to own a brand-new apartment.
Indeed there are buyers who often purchase numerous units within the same development all for the purpose of assigning.
The practice is not without risks: There is no guarantee that as the building nears completion, the price of the property will have increased.
Also, there is no guarantee either that the building will have ‘sold out’ before completion, thus making it harder to sell an assignment sale as it is virtually impossible to compete with a unit still available at a pre-sale price.
There is also the issue of potential buyers needing to find the necessary funds upfront as payment for the contract transfer. These include the replacement of the deposit that the original purchaser paid to the developer (typically 25 per cent of the purchase price) plus the ‘lift’ or profit in the price from original purchase price to new assignment price.
Initially, many Realtors were reluctant to represent assignments as, for the most part, developers did not allow such listings on MLS.ca – which has always been Realtors’ main advertising vehicle. But with the advent of specialist sites such as AssignmentsCanada.ca, Realtors are now equipping themselves with knowledge of assignment transactions.