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Recently, there is lots of News about the unfinished projects of Preconstruction homes, some builders require the prospective owner to increase the price significantly to finally complete the transaction (such as the latest news: STAYNER, a small town 125 kilometers away from Toronto, the developer requires the owner to pay an additional $175,000, or cancel the deal, the developer will return deposit), or as mentioned in the previous article,they require the prospective owner to bear the rather high development charge. Therefore, many friends have already turned to buying resale houses. However, there are still some customers who prefer pre-construction homes. They usually feel that:
The initial investment of Preconstruction home is low (the deposit is sometimes as low as 5%-10%), and it feels like you can own a property with a small amount of money. (About the actual cost before final closing,we will talk about it in a later article)
I can live in a brand new house. As far as I know, many Chinese people have this preference.
The Preconstruction home gives an impression that we are the original buyer, the price we paid for the property is the lowest.(I personally feel that this idea is a bit inappropriate, and I will talk about it later)
This is the thing I want to talk about today. Many friends have a speculative mentality: I can take the purchase right of pre-construction home first, anyway, it just 5%-10% deposit. If I don’t like it,or my money is not enough,or the developer increase the price significantly in future,or the development charge is too high to bear, or if I can't get the loan, I can do assignment sales.Developers usually provide a free assignment opportunity.
Now let's talk about the fourth point, which is actually quite dangerous thought.
You pay a deposit, and you just get the right of purchase this property from developer. Your name just appears on the developer's register, but not official land office's register ( After closing, your name will be registered with the official Land Office, and you are the real owner). It means that the title does not belong to you during this period, but to the developer.
Even if developer does not charge you any assignment fee, the property is owned by developer and you need to get its permission before any assignment. Different developers have different regulations. Some require 90% or 95% sold out of the entire project before any assignment is allowed. OR any assignment can only be made 3 months before the closing date OR no assignment can be made 3 months before the closing date, etc. In short, it does not mean that you can do assignment sales as you wish.
The assignment of pre-construction homes is different from selling other properties. It is not allowed to do on the MLS system. Because the title of property still belongs to the builder or developer. If found by the builder or developer that you post advertisement on MLS for assign its pre-construction home, the developer will ask you to take it down, fined,or even cause legal disputes. In this way, the source of customers for assignment is limited, which brings greater difficulty.
The assignee needs a lot of cash flow to closing the deal. The assignee needs to pay not only the deposit that assignor has already paid to developer but also the price difference which the assignor would like to earn. However, most of banks can only issue the mortgage based on the valuation of the original selling price. Because of that, the assignee has high requirements in cash flow, which is also a factor that makes it difficult to assign.
At the same time, the developer will qualify all protential assignee. Developer will agree to assignment only after the assignee has passed the review and proves that he/she has the ability to purchase it. Even so, when the assignee cannot complete transaction, the original buyer still needs to bear the responsibility of CLOSING.
Assignor wants to make a profit,it is not an easy task. After paid out the transaction fees, legal fees, various taxes, etc., a survey shows that, even if the price difference is $90,000, the assignor will only receive a few thousand in pocket.
Anyone who is planning to purchase pre-cunstruction homes should also pay attention to the fact: If the pre-cunstruction homes cannot be assigned, and the original purchasor has responsibility to close the deal.If he/she can not close the deal, it's not just losing the deposit. The developer will try to sell the property again, If the selling price is lower than the original purchase price, the developer will ask original buyer for the difference and related expenses.
After talking about some details of assignment sales, we should really consider carefully before purchasing any pre-construction homes, make carefully estimates, and don’t blindly follow the trend.
If you have any questions, suggestions, comments or additions to the point of view, please email me:
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