Condo Assignment Costs
There are two points of view on costs:
1. The Assignor (seller) and
2. The Assignee (buyer).
1. Assignor (seller) Costs
Builders typically charge the Assignor an assignment approval fee based on a percentage of the original purchase price (before taxes).
Example: Most builders charge an assignment approval fee. For example, if the fee was 1% of your original purchase price (this was the case recently in one of our transactions) and if your condo originally cost you $200,000, you would pay $2,000 in fees to the builder. No HST or it is included most cases.
Builders will typically ask Assignors to pay their legal fees to have the request documents drawn up by their lawyers. This varies between $300 and $600 plus HST. In a recent transaction, it was $400 plus HST @13% or $452.00.
These payment is made by certified cheque or money order by the Assignor after we secure a firm agreement.
Builders will sometimes stipulate that Assignors will pay a request denied fee if your request is turned down. This might be about 10-15% of the assignment fee or about $300 on a $250,000 sale.
a. Legal Fees. $1,200-1,500 plus disbursements. These deals are more complex than resales and involve three parties (Assignor/Assignee/Builder) and their respective lawyers in a two-stage process (Interim Occupancy and then Final Closing).
b. Realty Fees. The Assignor (seller) pays these fees plus GST and they will vary in a competitive market.
c. Staging Fees (optional, but highly recommended) – get a free estimate by phone. An on-site quote is free but a $200 fee applies if you decide not to use this service after the on-site final quote is given. Typically the fee is as low as $1,500 – $2,000 for the first month (delivery/set-up cost covered here) for a 700-800 square foot 1 Bed/1 wash unit and 50% of this amount for each extra month . Price depends on condo size and various options. Two bed + two wash might be $2,200 to $2,600 for first month and 50% of that per month thereafter. This cost includes rental furniture, pictures on wall, artificial flowers and many decor items (towels, etc.) to add life and colour to an otherwise stark and vacant suite.
Total Cost Range: $14,000-$16,000 *
* Based on the example used of a $200,000 original purchase price and not including staging fees.
2. Assignee (buyer) Costs
The Deposit – One time & is returned with interest (conditions apply)
The Assignee will be required to provide a “good faith” deposit with the offer. This would typically be in the range of $10,000 and up to 5% or more of the new purchase price. These monies are not really a cost for the Assignee as they are held in trust by the Listing Brokerage to secure the assignment agreement and returned to the new buyer (Assignee) at closing. Interest is paid on the deposit to the Assignee but it is nominal. The Assignee’s cost is the interest paid on a loan to get these funds or on interest foregone on any cashed-in investments less the nominal interest paid by the Listing Brokerage subject to restrictions.
Interim Occupancy Fees – monthly until closing
The Assignee will be required to assume the payment of the interim occupancy fees from the date of acceptance of the assignment agreement until closing. Often, the closing date is not known at the time this acceptance (firm agreement between Assignor and Assignee) is reached. Typically, the time between interim occupancy (when most assignments can begin) and closing is 3-4 months but this period can be longer. It would be highly unusual to be longer than 12 months.
Interim Occupancy fees are made up of three factors:
1. Mortgage component that uses an interest rate applied to the original purchase price of your unit. What you paid for it, not what you are selling it for. The interest rate is regulated by the Condominium Act but is typically higher than the competitive market rate.
2. Condo Fees (estimated) e.g.; $0.52 per square foot of your suite (not counting the balcony).
3. Property Taxes (estimated) e.g.; 1.2% of original purchase price.
The Assignee does not have to pay any other costs to the builder or assignor and may occupy the unit right away. The Assignee would be responsible to pay for any utilities not included in the condo fees, e.g.; possilby water, hydro (electricity), etc. and personal services like cable tv and telephone.
The mortgage component does not reduce the amount the assignee will owe on closing – no principle is being paid down. For example, over the course of the first full year, the principle paid off on most mortgages amounts to $100-$300 dollars per month on a $200,000 mortgage given current interest rates. The market price appreciation at a conservative 4% per year would be at least three times this (over $600 per month). The interim occupancy fees represent a fair “rent” in return for occupancy and there is a financial advantage to the Assignee when price appreciation is taken into account. From an Assignee’s point-of-view, not knowing the closing date and perhaps paying these fees for more than the average 3-4 months is still a good financial investment.
Closing Costs (including Levies, excluding the mortgage) – one time:
The usual closing costs apply to these assignment sales. The assignee will pay the following fees and costs as an example:
a. Legal fees. About $1,200-$1,500
b. Land Transfer Tax (Ontario & Toronto) – calculator. You will pay this tax on the new purchase price. A $275,000 price would cost $5,075 for example. First-time buyers get rebates. Ask us about these.
c. Levies. All new home or condo sales have levies associated with them. These include educational levies and utility levies (gas, hydro, sewage, etc.) that the builder will allocate to the unit owners at closing. This is specified in all new home builder contracts. Sometimes they are “capped”, most times they are not. Typically, these levies are about $3,000-$8,000. The builder can only pass through the actual costs and is not permitted to add profit or administration fees. Example: If the educational levy was $500,000 for your condo building and there was 200 units in your building, the levy would be $2,500 ($500,000/200). The builder usually notifies the unit owners of these cost 2-3 weeks before closing.
Insurance Costs (monthly)
The assignee must purchase condo insurance to cover contents and public liability. This is similar to renter’s insurance but with condos there are a few extra issues that you should have covered. These include deductibles and special assessments – riders that we recommend you include.
Total Costs: $9,000 – $11,000* (before rebates, if any)
* Based on the example used of a $275,000 new purchase price
Other Closing Costs – Condo Reserve Fund
Reserve Fund initial payments may be stipulated in the original builder’s agreement. We have seen Builder contracts that stipulate a three-month condo fee be paid by the Buyer to “kick-off” the condo reserve fund. With condo fees ranging from $400 to 600 or more, this is something you want to be prepared for at closing. This is a non-refundable cost.