Buying an apartment by assignment

For this reason, it may turn out that all the residential properties in the house have already been sold. One of the most obvious ways out of this situation is to buy an apartment by assignment. Although people who are not familiar with the real estate market can hardly fully understand what it is, how such transactions are concluded, what are the pros and cons of buying a home by assignment. Let's try to figure it out.

What is buying an apartment by assignment?

Buying an apartment by assignment is conclusion of an agreement under which the ownership of the investment object is transferred. Simply put, this is the purchase of an apartment from an investor who has invested in the construction of a new house, while the house has not yet been put into operation.

An investor who has purchased the housing in a new building, e.g., at the excavation stage, and has every right to sell his apartment under construction. That is, they can reassign the ownership of the future housing. The reasons for this could be many: from an urgent need for money to the appearance on the market of residential property with more suitable characteristics.

If we consider the assignment as a contractual mechanism, in fact this is a secondary contract by which the rights are acquired. In other words, a person actually buys new housing, but under a secondary contract. Accordingly, the risks of verifying the lawfulness of the acquisition and alienation of the seller’s rights are added to the general risks typical for any purchase of housing on the primary market. In this regard, when buying a home by assignment, you should be extra careful, carefully check all possible hidden pitfalls and by no means rush to conclude an agreement.

How to buy an apartment by assignment?

Careful selection of the investor and analysis of the developer helps you to conclude an assignment agreement on the most favourable terms. The conclusion of such an agreement entails certain risks. The form of the agreement can vary, depending on what investment scheme the real estate was purchased by the primary buyer.

In any case, the agreement should not contain ambiguities, it should contain information about possible penalties and it should contain the signatures of all parties to the transaction.

An extremely important point is the proofreading and thorough verification of the contract between the investor and the developer, under which he invested in real estate. Many buyers pay attention only to the apartment assignment agreement, completely forgetting about the original agreement between the investor and the developer. Although this is a huge mistake, because that agreement may contain clauses that the new owner of real estate needs to know about.

It is better not to use the option of concluding different agreements with the developer and the investor. Lawyers insist that one tripartite agreement is optimal. When buying an apartment under an assignment agreement, it is recommended that you first buy it through the Construction Financing Fund. In this situation, the buyers protect themselves from risks as much as possible.

Before buying an apartment by assignment, you have to check the following points:

• the developer has land and construction authorization documentation;
• construction time is met;
• there are no violations of the agreement with the developer on the part of the investor (you should better analyse the agreement for this);
• whether the developer officially authorizes the resale of unfinished housing.

Contract execution process

Assignment from a developer is a process with several important nuances. Optimally, the assignment procedure should look like this:

1. Obtaining an assignment permit from the developer. Such permit is given if the investor has paid 100% of the apartment cost. If the amount is not paid in full, the remainder of the debt is paid by the buyer.
2. Verification of permits and construction terms. You should trust tried and tested companies, for example, RIEL Real Estate Corporation, which during its existence has implemented more than 60 projects in Kyiv and Lviv. If the developer does not have any mandatory documents, or if it noticeably delays the putting the object into operation, this should be alarming. You’d better keep away from such developers.
3. Checking the developer for the absence of legal claims. It is necessary to check the registers on whether the developer is a defendant and whether the bankruptcy procedure is launched.
4. Checking other facilities of the construction company. This will provide an aggregate picture of the developer. For example, if it put into operation several residential complexes over the past year and the tenants are happy with everything, there are no issues for concern.
5. Investor verification. First of all, it is necessary to understand the investor’s motives for the sale of an apartment, as well as, if possible, try to find out about their background. For example, convictions for fraud should give you a pause for thought.
6. Drafting an assignment agreement. It is better to entrust the drafting of such an agreement to experienced realtors and lawyers who will take into account all the nuances and will be able to protect the buyer as much as possible.
7. Concluding of the agreement and its notarization.

Sometimes, a mortgage of an apartment by assignment may even be taken out. In this case, except for the developer, investor and buyer, one more party is involved in the transaction – the bank. For the buyer, the advantage is that it is necessary to initially pay only part of the amount given to the investor, while the rest of the debt is gradually paid to the bank. Although at the same time it is necessary to understand that all mortgage obligations are transferred to the buyer. Sometimes, the initiator of the sale of an apartment under assignment agreement may be a banking institution. This happens when the investor systematically violates the terms of the loan agreement.

What taxes does the buyer pay under the assignment agreement?

Under the assignment agreement, the buyer pays the same taxes as under a regular sale and purchase agreement. The owner of the apartment should pay 5% of income tax and 1.5% of the military tax if the apartment was owned for less than three years and/or if this is the second transaction of purchase and sale of real estate during the year. The buyer pays 1% of the amount of sale to the Pension Fund.

Advantages and disadvantages of buying an apartment by assignment

The assignment of an apartment in a building that has been put into operation or is under construction is of interest to many buyers. The main advantages for the buyer:

• you can buy an apartment in an almost completed building 10-20% cheaper than its market value;
• the buyer can assess whether the developer fulfils the obligations for object due date, minimizing the risks of messing with long-delayed construction;
• waiting for the house to be built is less, which means you can move into your new home sooner;
• the opportunity to purchase an apartment in the desired new building, even if all apartments are already sold out there.

There are also disadvantages to such a deal. The major are the following:

• the need to pay the entire amount at once (except in cases of buying a mortgage apartment) without the possibility of receiving instalment plan from the developer;
• possibility of extra payments – developers often allow the transfer of rights to residential property only upon payment of a certain commission;
• impossibility of reclamations to the seller – the money is paid to the primary investor, and all controversial issues should be resolved with the developer;
• if the apartment is on the assignment mortgage, all obligations under the loan agreement are transferred to the new buyer.