The Comprehensive Guide to Assignment Sale in Canada
Assignment sale has become increasingly popular in the Canadian real estate market, offering buyers and sellers a unique opportunity to participate in property transactions before the completion of construction or even before taking ownership.
In an assignment sale, the original purchaser (the assignor) sells their rights and obligations under the purchase agreement to a new buyer (the assignee), who completes the transaction with the developer.
This post aims to provide a comprehensive overview of assignment sales, covering the legalities, pros and cons, and practical tips for both buyers and sellers.
By understanding the intricacies of assignment sales, individuals can make informed decisions, maximize opportunities, and navigate the process with confidence.
Assignment Sale in the Pre-Construction Real Estate Market
So, you have probably heard the term “assignment sale” thrown around in the Canadian real estate market, but what does it actually mean?
Well, in simple terms, a pre construction assignment sale occurs when a buyer of a property decides to sell their rights and obligations under the original purchase agreement to another buyer before the property is officially completed
It allows buyers to enter the real estate market without having to take ownership of the property and offers a chance to make a return on investment even before the property is built.
Unlocking the Key Elements of a Successful Assignment Sale
1. The Legal Framework
Assignment sales are subject to various provincial and municipal regulations, which can differ from one jurisdiction to another. It is crucial to familiarize yourself with these regulations to ensure compliance and a smooth transaction.
2. Assignor and Assignee Rights and Responsibilities
Both assignors and assignees have rights and responsibilities when it comes to assignment sales. For assignors, it’s important to understand their obligations under the builder agreement and any restrictions on assigning the property.
Assignees, on the other hand, must thoroughly review the assignment agreement and conduct due diligence on the property before finalizing the deal.
3. Disclosures and Documentation Requirements
Transparency is key to a successful assignment sale. All parties involved must provide full disclosures of any relevant information to ensure a fair and informed transaction. Documentation requirements may include the assignment agreement, builder consent, and any additional documents required by the developer or municipality.
How Pre Construction Assignment Sale Beneficial for Both the Buyer and the Seller?
Assignment sales can indeed offer mutual benefits for both the buyer and the seller. Here are some benefits for each party:
Benefits for the Seller (Assignor)
- Profit Opportunity: The original buyer can capitalize on potential market appreciation by selling the property at a higher price than the contracted purchase price. This allows the seller to make a profit without actually taking ownership of the property.
- Avoiding Closing Costs: By assigning the contract, the original buyer can often avoid some of the closing costs associated with taking possession of the property, such as land transfer taxes and registration fees.
- Flexible Exit: If the original buyer’s circumstances change, and they are unable or unwilling to complete the purchase, assigning the contract provides a way to exit the deal without defaulting on the agreement.
Benefits for the Buyer (Assignee)
- Potential Discount: The assignee may have the opportunity to purchase the property at a lower price than the market value at the time of completion. It can be especially advantageous if property values are expected to rise.
- Locking in Pre-construction Prices: Assignees can secure a property at pre-construction prices, which might be lower than the prices of completed units in the same development.
- Avoiding Bidding Wars: In competitive real estate markets, getting involved in a pre-construction assignment can allow a buyer to secure a property without participating in bidding wars that often occur with existing homes.
- Customization: In some cases, the assignee may have the option to customize certain features or finishes in the property since the sale is occurring before construction is complete.
Is Buying Assignments Really Worth the Cost?
Whether it’s worth it to buy an assignment depends on various factors, and individuals should carefully consider their circumstances, goals, and the specifics of the assignment opportunity.
Here are some factors to consider when determining the value of buying an assignment:
- Purchase Price vs. Market Value: Assess whether the assigned property’s purchase price is reasonable compared to its current market value. If the property has appreciated significantly since the original purchase agreement, it could be a good deal.
- Assignment Fees and Costs: Take into account any fees associated with the assignment, such as the assignment fee charged by the original buyer (assignor) and any processing fees imposed by the developer. These costs can affect the overall affordability.
- Market Appreciation Potential: Assess the potential for future market appreciation. If the assigned property is in a rapidly growing area or is expected to see increased demand, it could be a wise investment.
- Financing and Affordability: Consider your financial situation and ability to secure financing. Determine if the assigned property fits within your budget and financial goals.
- Timing: Consider the timing of the assignment. If you are in a rush to secure a property, an assignment may offer a quicker path to ownership compared to waiting for a new construction project to be completed.
- Resale Potential: Calculate the resale value of the property. Even if you don’t plan to live in the property long-term, its future resale value is an important consideration.
How Assignment Sale Work?
Assignment sales in real estate involve transferring a buyer’s rights and obligations in a purchase agreement to another party before the property is completed and officially transferred to the original buyer.
Here’s a step-by-step overview of how assignment sales typically work:
- Original Purchase Agreement: The process begins when an initial buyer (the assignor) signs a purchase agreement with a developer to buy a property during the pre-construction phase.
- Assignment Decision: The original buyer decides to assign their rights to the property to another buyer (the assignee). This decision could be influenced by changes in personal circumstances, investment opportunities, or other factors.
- Negotiation between Assignor and Assignee: The assignor and assignee negotiate the terms of the assignment, including the assignment fee. The assignment fee is the amount the assignee pays to the assignor for the right to step into the original purchase agreement.
- Assignment Agreement: An assignment agreement is drawn up to formalize the rights transfer. This document outlines the terms of the assignment, including the assignment fee, any conditions set by the developer for approval, and the responsibilities of each party.
- Developer’s Approval: The assignment agreement is submitted to the developer for approval. Developers typically have the right to review and approve or reject assignment agreements. They may charge a fee for processing the assignment.
- Assignment Fee Payment: Once the assignment is approved, the assignee pays the assignment fee to the assignor. This fee is in addition to any remaining balance the original buyer owes to the developer under the initial purchase agreement.
- Closing the Assignment: The assignment is closed, and the assignee assumes the rights and obligations outlined in the original purchase agreement. The assignee now becomes the new buyer of the property.
- Completion of the Property: When the construction is completed, the property is officially transferred to the assignee. The assignee takes possession of the property without being involved in the original pre-construction purchase process.
Exploring the Diversity of Assignment Sale: Beyond the Condo Market
While assignment sales are associated with condominiums, as many assignment listings are condos, it’s important to note that assignment sales can involve more than just condos.
Assignment sales can occur with various types of real estate, including:
In some cases, individuals may enter into pre-construction agreements to purchase single-family homes. Assigning the rights to such agreements can also be done, although it might be less common than with condominiums.
Townhouses, like condos, are often subject to pre-construction sales. Assigning the purchase agreement for a pre-construction townhouse can provide similar opportunities for both the original buyer (assignor) and the new buyer (assignee).
Commercial Real Estate
While less common, assignment sales can also occur in the commercial real estate sector. For example, a business owner who has agreed to purchase commercial space in a pre-construction project might choose to assign that agreement to another party.
Land and Lots
In situations where developers sell pre-construction lots or parcels of land, assignment sales can involve the transfer of the right to purchase and develop that land.
Assignment sales can also apply to fractional ownership arrangements, where an individual has agreed to purchase a fraction of a property (such as a vacation home) during the pre-construction phase.
Remember, selling through an assignment sale requires careful consideration and planning. By understanding the market demand, improving the property’s appeal, negotiating favorable terms, and seeking professional advice.
You should know three essential things before purchasing an assignment to increase your profitability and minimize potential pitfalls in the process.