‘Assign­ments’ seen as the Wild West of condo sales

Susan Pigg – Toronto Star

A vet­eran Toronto real estate agent is launch­ing a new MLS-like web­site aimed at open­ing up the under­ground condo assign­ment market.

Com­ment: Why call it “under­ground”? You are try­ing to make it sound illicit, which it is not. How is it any dif­fer­ent from the untracked world of pri­vate sales?

The new site, Assign​mentList​ingSer​vice​.com, is meant to pro­vide a cen­tral­ized list­ing of assign­ment units now largely being sold via word of mouth or through unreg­u­lated online sites such as Craigslist and Kijiji.

Com­ment: Blame the builders, do not make it sound like sell­ers or real estate agents are being sly or under­handed. Builders will not let buy­ers sell their units until the condo cor­po­ra­tion is reg­is­tered. Some times peo­ple need to sell, their life has changed. Heck, it could have been 4 years since they bought – maybe they are mar­ried with a child now and need the money to buy a house. This is not some dirty underworld.

For now, it’s largely restricted to real­tors for a fee but, over time, it’s hoped more pub­lic list­ings will be acces­si­ble to the pub­lic as resale prop­er­ties are now on Real​tor​.ca

“What we’re try­ing to do is add some trans­parency to the process,” says Jamie John­ston of downtown’s ReMax Con­dos Plus Corp. “I don’t know how big this is going to be, but it’s impor­tant it be an orderly market.

Com­ment: Orderly? Or prof­itable? Note that it is only avail­able to real estate agents who pay for access. This is just one bro­ker­age try­ing to take advan­tage of a part of the mar­ket. Good for them, it is harder and harder to make money in real estate these days, so much com­pe­ti­tion. But let’s call it what it is, a way to make money, not some altru­is­tic endeav­our to help all those poor folks who need to buy or sell a condo assignment.

“Right now it’s the Wild West.”

Assign­ments are typ­i­cally brand new con­dos or units still being built that buy­ers pur­chased years ear­lier in the pre­con­struc­tion phase. By “assign­ing” — or flip­ping — them to new buy­ers before the project is fully occu­pied and reg­is­tered, the ini­tial buyer is able to pocket con­sid­er­able prof­its and pass some or all of their clos­ing costs to the new buyer.

Com­ment: An assign­ment is the sale of a condo where the condo cor­po­ra­tion has not been reg­is­tered and the orig­i­nal buyer does not yet have title to the condo. They are essen­tially sell­ing the pur­chase con­tract, they are assign­ing the right to buy it. It does not mean the orig­i­nal buyer pock­ets a ton of prof­its, let’s be clear. And if you had bought any prop­erty 3–5 years ago and sold it now, you would make money.

The new buyer gets the ben­e­fit, in many cases, of being able to actu­ally walk through a never-lived-in unit rather than hav­ing to buy from blue­prints, although the uncom­pleted build­ing can still be, as John­ston puts it, “a war zone.”

Com­ment: A con­struc­tion zone, but call­ing it a war zone is a bit much.

The sec­ondary buyer can also snag a bit of a bar­gain: Assign­ments tend to sell below mar­ket value, or at least they did before condo prices started slip­ping last fall.

Com­ment: Not quite. The mar­ket value of a condo does tend to rise when the condo corp is reg­is­tered. Buy­ing before that means you are sim­ply buy­ing some­thing worth less, not at less than it is worth. But buy­ing a month before reg­is­tra­tion can cer­tainly see a nice short term price bump.

But these deals can also be com­plex and risky and the sec­tor largely unreg­u­lated. Many real­tors and lawyers avoid assign­ments because the con­tracts and fees are far more com­pli­cated than nor­mal resale deals.

Com­ment: Not so much risky, but cer­tainly a lit­tle more com­plex than a stan­dard deal. Hav­ing done a few, they are noth­ing to be afraid of. There is the same reg­u­la­tion involved as with any other sale. You would have 2 real estate agents involved, 2 lawyers, the buyer and the seller. The builder also has to give con­sent in writ­ing. All the same rules apply as to a resale trans­ac­tion. You would need a mort­gage approval, etc. Not sure why the writer is try­ing to make assign­ments sound so shady… blame the builders, allow peo­ple to put them on MLS, get it all out into the open.

It can also be more dif­fi­cult to deter­mine the real value of the units because any com­pa­ra­bles sold in the build­ing sel­dom show up on the resale Mul­ti­ple List­ing Service.

Com­ment: The real value is what some­one will pay for it. And you can sim­ply do the math. If the orig­i­nal price was $300,000 and prices have risen 5.46% every year since, then the unit is likely worth around $350,000 give or take. And if the new buyer agrees, then we know the value of the unit is now $350,000. Easy.

On top of that, most devel­op­ers’ con­tracts for­bid ini­tial pur­chasers from mar­ket­ing their units on MLS or other online ser­vices, for fear they will com­pete with any units the builder has yet to sell.

Com­ment: And that is why all of this hap­pens off MLS and out of sight. It is the builders who con­trol the situation.

Some devel­op­ers charge $5,000 to $7,000 for the right to assign units.

Com­ment: No, most charge $2,000.

Many allow it free but for­bid mar­ket­ing the units on MLS or other pub­lic online ser­vices. Buy­ers found vio­lat­ing that rule can have their units seized and lose their deposits, but devel­op­ers usu­ally back down as long as the unit is pulled off pub­lic sites, says real estate lawyer David Feld.

Com­ment: Try ALL of them for­bid the pub­lic offer­ing for sale of the units. Sure, you can sell it pri­vately to your aunt, but you can­not adver­tise them pub­licly for sale. Even on Kijiji or Craigslist is tech­ni­cally against their rules. And the penal­ties are bru­tal, the builder can take back the unit and keep your deposit, leav­ing the buyer with noth­ing. Gen­er­ally they only police MLS, but even putting it up on some small online clas­si­fied site could get the unit for­feited. Again, blame the builders.

John­ston antic­i­pates that up to 8,000 assign­ment units could come on the mar­ket annu­ally across the GTA over the next few years as devel­op­ers start to build the record 28,000 condo units sold in 2011. Mar­ket research firm Urba­na­tion believes the real num­ber will be sub­stan­tially lower than that as buy­ers opt to hold on and rent out units in the soft­en­ing market.

Com­ment: And I believe Urba­na­tion more. That and I just don’t see that many assign­ments out there. We had 28,000 com­ple­tions a cou­ple years back and there was no spike in assignments.

Johnston’s aim is to not only pro­vide a cen­tral­ized list­ing ser­vice for assign­ments, but also real estate and legal experts knowl­edge­able about the specifics of this small but impor­tant seg­ment of the grow­ing condo market.

Com­ment: Other than the aim of mak­ing money from the fees to access the service?

He believes that because Assign​mentList​ingSer​vice​.com is quite dif­fer­ent and sep­a­rate from the resale MLS com­puter list­ing ser­vice, it won’t vio­late most devel­op­ers’ rules.

Com­ment: Yes, it cer­tainly does. It is the pub­lic offer­ing for sale of units not yet reg­is­tered. Exactly against the rules writ­ten into all sales contracts.

Feld isn’t so sure, as some­one who’s seen the assign­ment mar­ket from both sides — he’s han­dled many such deals and is now qui­etly try­ing to find a buyer for a brand new town­house he bought in the pre­con­struc­tion phase.

“They aren’t voodoo. You’re get­ting some­thing new with the added bonus of actu­ally see­ing it first,” says Feld. “But, ulti­mately, it’s the builder that is in control.”

—————————————————————————————————–
Con­tact the Jef­frey Team for more infor­ma­tion – 416−388−1960

Lau­rin & Natalie Jef­frey are Toronto Real­tors with Cen­tury 21 Regal Realty.
They did not write these arti­cles, they just repro­duce them here for peo­ple
who are inter­ested in Toronto real estate. They do not work for any builders.
—————————————————————————————————–

Related posts:

1. Things to watch for when flip­ping a condo Many buy­ers of new GTA con­dos look­ing to cash in…
2. New Toronto condo sales hit record Devel­op­ers sold 5,415 new con­do­mini­ums in first three months of…
3. GTA condo sales near record high There were 37,041 new and resale con­do­minium units sold in…
4. Sales of new con­dos surge in the spring The experts and pun­dits have been call­ing for the collapse…
5. Condo sales in Toronto drop for first time in 16 years New condo sales in Toronto decreased for the first…