Yes, you read that correctly. And yes, it was a really bad play on words. Well, I guess now I know what it feels like to be the headline writer for the Toronto Sun…
We rarely talk about “condo assignments” on this blog, since I don’t sell or deal with any pre-construction condos, and I think the assignment “market” is non-existent.
But I wanted to talk today about the ludicrous “adjustments” that developers levy upon closing of pre-construction condos, but also how utterly insane sellers are to think they can assign their Agreement, and avoid paying these costs…
Have a look at the following.
This is both the worst and greatest thing I’ve ever seen.
It’s sad for the buyer, but just incredible in terms of demonstrating how messed up the pre-construction condo industry is.
I found this thread on www.redflagdeals.com, where a buyer was talking about closing his condo that he purchased in pre-construction:
I brought a 1 bedroom plus a den condo at 295 Adelaide St W, Toronto by Pinnacle on Adelaide for $349,900. And it is closing next week, I just received the final adjustment numbers from the vendor and I am shocked! I didn’t budget it for this kind of money $53,971 in adjustment and other closing fees.
Purchased price $349,900
HST Rebate $26,894.68
Deposit Administration Fee ($84.75 per deposit cheques – I made 3 deposits) $254.25
Interest on deferred amount $2,528.48
Common expenses $1,223.84
Estimated 2014 reality taxes $881.94
Estimated 2015 interim reality taxes $1,749.50
Tarion fee $971.80
Status Certificate $100.00
Legal Fees Re Partial Discharge(s) (vendor mortgage discharge fees) $621.50
Bennett Jones LLP (builder’s lawyer) $975.75
Hydro, Water Gas $514.38
Section 3 $9,409.51
Law Society Levy $73.45
2 Bedroom Levy $6,579.99
What the heck is 2 bedroom levy when I only have 1 plus den?? And Section 3 for a whopping $9,409.51??
First of all, note the line “I didn’t budget for this.”
That’s this person’s fault, for not being prepared, but it’s also not his fault, since most buyers have no clue how bad developers are going to screw them upon closing.
Imagine buying a condo for $349,900, and paying $53,971 in closing costs?
It can get a LOT worse than this, trust me. Google “closing cost horror stories” and you’ll read articles about buyers who had to pay 6-figures.
But I chose to highlight the above example because a 1-bedroom condo is common, a $350K condo is common, and this buyer’s story is exceptionally common.
I love the part about the “2-bedroom levy” when he only bought a 1-plus-den. What’s the levy for anyways? And what is the magical “Section 3?” Is this where the buyer pays the builder’s development charges from the City of Toronto?
Look, we could pick apart this statement of closing costs all day. The point of this blog wasn’t really to discuss pre-construction condos and the risks associated with buying. I’ve done that for eight years, and I’m at the point where I almost take a small amount of joy in hearing from the people that didn’t listen to me…
I wanted to talk more about the idea of “condo assignments,” and how crazy some assingors are to believe they can weasel out of these costs.
Let me come up with a couple of analogies…
You go to a popular restaurant in the dead of winter, and because it’s so packed, you have to wait outside in the cold, and it takes a half-hour just to get inside. Once you’re in the foyer, you put your name on the waiting list, and then sit for ninety minutes until your table is ready. The service is awful, and the waiter takes forever to take your order. An hour later, your food arrives at the table. And at that point, somebody takes your seat, and eats your meal. Oh – and you pay for it.
That sucks, right?
Maybe this isn’t the perfect parallel to what I’m trying to say…
How about this: you’re speeding in traffic, and a cop pulls you over. Then suddenly, another car pulls up, a man gets out and says, “It wasn’t him, it was me. I’ll pay the ticket, and have it go against my record.”
Hmmmm…..that’s not right analogy either.
Okay, well, why don’t I explain what’s going on with these would-be sellers of condo assignments, and then you can see what I’m getting at.
Take a condo was purchased in pre-construction, is now built and occupied, and is scheduled to be registered in two months. Upon closing of the unit, the buyer will pay land transfer tax, closing costs, and adjustments to the developer.
So let’s say that the buyer of this unit is looking to sell, but of course, he can’t sell what he doesn’t own; the building isn’t “registered” yet, as it’s in “occupancy.” The building will be registered in two months, so the buyer can “assign” his unit to a third party, and that third party can close the deal with the developer.
The buyer, who becomes the seller/assignor, is looking for an assignee to take on the terms, conditions, and responsibilities (ie. liabilities) of the original Agreement.
This, theoretically, could come with paying ALL the closing costs and adjustments.
So my question: why the $&%$@ would anybody ever purchase this assignment?
They wouldn’t. Right? That’s what you’re thinking? Because you’re all knowledgeable, informed readers of TRB who also probably wouldn’t assume that a “Free Starbucks Coffee, First Come First Serve” doesn’t last FOREVER? 🙂
But it doesn’t stop people from listing their “assignments” before closing, and hoping that somebody steps up to the plate and assumes $50,000 worth of closing costs.
A sucker is born every day, right?
Two weeks ago, I went to show a unit in the Queen West area to a client that wanted to check out the building, even though it wasn’t registered yet.
The unit has been “occupied” for over a year, and the building is finished, but there’s no “condominium corporation” yet, and thus the seller can’t sell. He has to assign.
The unit shows up on MLS like any other – great photos, full description, virtual tour, and everything you’d expect to find in a half-decent listing. But in the broker’s notes, it says, “This Is An Assignment Sale. Building Expected To Register In April.”
I showed the unit, and my client wasn’t all that interested. It was probably over-priced by a good 6-8% in my professional opinion. But the listing agent, who also happens to be the seller/owner/assignor, called me for feedback.
I tried to be helpful, and kind at the same time. I told him, “It’s a nice unit, it’s just not for my client.”
I told him how I don’t deal with assignments, and how I find them to be “messy” in nature – what with all the unknowns. The risks, the clauses and conditions that are needed, the hold-back of sale proceeds to account for future taxes and fees, and of course – the adjustments.
To my utter amazement, the seller said to me, “Well none of that is my problem.”
I asked simply, “How d’ya figure?”
He said, “Well this is an assignment. I’m not looking to cross the finish line holding the buyer’s hand here. I’m outtie – see ya!”
He finished his sentence, and I didn’t say anything. My mind was spinning like a hamster on a wheel. Picture my brow furrowed, staring at the wall of my office, trying to understand this guy.
Silence persisted, and finally I said, “Come again?” I couldn’t think of an easier way to put it.
He said, “What’s not to understand? I’m saying – this isn’t a sale, it’s an assignment. The buyer here is going to take on my Agreement of Purchase & Sale, and the rest of the transaction is up to him.”
I was already writing this blog in my head as I picked my way through this mine-field of a conversation, and I asked bluntly, “Sorry…….are you saying that you expect the buyer to pay all of your closing costs and adjustments?”
He replied, “Buddy – those aren’t MY closing costs and adjustments. If the assignee becomes the buyer, then HE closes with the developer and HE pays the adjustments.”
Again, I was shocked.
Was this guy for real?
I want to start a bar fight, but I want somebody else to get the glass bottle to the eye at the end.
This condo is likely going to register in two months, so why in the world would any buyer choose to become the “assignee,” and purchase it now, inherit $30-$50K in potential closing costs, when they can just wait two months and buy it as a resale condo?
Sure, the City of Toronto gets Land Transfer Tax twice, but why would anybody take on somebody else’s closing costs?
It’s not like this was some sort of deal either – the unit is blatantly over-priced, and had a tenant attached until July 31st!
“This is how assignments work,” the agent/owner/assignor told me as I sat in silence, trying to digest it all.
“I respectfully disagree,” I told him. “Best of luck with the sale.”
I learned a long time ago not to argue with people like that. He’s utterly uninformed, and for a Realtor, he knows very little about real estate.
This bothered me for a little while, as I wondered if the buyers of pre-construction condos REALLY think they can find somebody to assume their massive closing costs – especially so soon before closing. So I found three random assignments on MLS, and called all three agents to ask what their clients were hoping to do with the closing costs.
One agent was as confused as I was, and he said, “Well, I don’t expect your buyer to take on all the closing costs on his own, so obviously something would be worked out.”
One agent suggested that the costs would be split evenly, since the unit was only in the second month of occupancy, and it likely had another year to go. I didn’t understand the logic there.
And the third agent didn’t answer any of my questions, and just kept saying, “Put it on paper! Let’s get it down! Bring me some paper and we’ll work it; we’ll work it over and over and we’ll get it together!”
One of of three ain’t bad…
The worst part about all this mess is my fear that today’s pre-construction buyers (not that I really care what happens to somebody that plays with fire) have this insane notion that they can buy on paper, and then assign the piece of paper right before closing to avoid paying the massive adjustments that they were probably too stupid to cap.
Most pre-construction buyers don’t hire a lawyer to go over the Agreement of Purchase & Sale during the mandated 10-day rescission period, aka “cooling off period.” They’re the buyers that get hit with adjustments upon closing, and developers count on people being too cheap to pay $2,500 for a thorough legal review, only to get hit with adjustments ten times that.
I understand that some people try to “flip paper” after they’ve bought at some VVVVIP sales event, and want to make a quick $20K five months later. I don’t agree, but I understand the logic.
But to try and sell an assignment two months before registration? How can ANY seller/assignor think the world is that stupid?
I guess stupid is as stupid does. And maybe stupid attracts stupid(er).
This whole conversation is just plain dumb. In fact, I think we are all dumber for having taken part in it…….just like…………remember…..