PROS AND CONS TO SELLING BEFORE REGISTRATION – ASSIGNMENT:
- The ‘first buyer’ will usually have to pay either an admin or transfer fee to the developer for the right to transfer their ‘interest’
- If the ‘first buyer’ declared that the property was a personal use property, then the HST Rebate has already been assigned to the developer. If the ‘second buyer’ is not buying the property for personal use then the developer will lose the HST Rebate and will then add the HST Rebate to the sale price to the ‘second buyer’.
- The ‘first buyer’ will be liable for income Tax.
- The ‘second buyer’ requires a larger down payment on closing (to cover the deposits by the ‘first buyer’ plus the difference in price between the first sale and the second). There is no mortgage financing at this stage because there is no property to register against. The end result for the ‘first buyer’ is a smaller pool of buyers for their property. Alternatively, the ‘first buyer’ takes back a promissory note with a direction for repayment from the proceeds on the closing.
- If the Assignment is done on the day of registration, the second Buyer can finance their purchase through a mortgage.
- Assignments usually sell for 5-10% BELOW market value comparable resale units.
- The ‘second buyer’ will pay all the closing costs from the developer.