The Pros & Cons of Assignment Sales

What Sellers & Buyers Need to Know

Assignment sales raise numerous questions in the housing market. How do they benefit sellers? How do they benefit buyers? What risks should you be aware of?

Many sellers debate whether to assign their properties or opt for resale. You should consider a variety of factors when deciding which option is best for you, and remember that no two situations are the same.

Meanwhile, countless buyers are unsure whether to buy an assignment or a resale. Again, there are numerous elements to consider before making a decision.

If you’re one of these buyers or sellers, you’ve come to the right place. In this blog post, we’ll break down the pros and cons of assignment sales for both parties.

What Are Assignment Sales?

An assignment sale is a transaction between a property’s original buyer (the Assignor) and a new buyer (the Assignee).

The Assignor sells their contract to the Assignee. The Assignee then completes the deal with the Developer and takes on the Assignor’s Agreement of Purchase and Sale.

Simply put, this means that the Assignor sells their promise to buy a property to an Assignee.

So, let’s get started on the pros and cons of selling and buying assignment sales.

Why Sell Your Assignment?

There are many reasons why you might sell your assignment. Maybe you’re planning a family, moving in with a partner or relocating. Perhaps you don’t have funds to complete the sale. Maybe you’re an investor looking to bank on quick price appreciation instead of waiting for an original closing date. Whatever the reason, these are the advantages of selling an assignment.

Benefits of Assignment Sales for Sellers

  • You’ll get your deposit back.
  • You’ll avoid land transfer taxes, harmonized sales tax (HST) fees and closing costs.
  • You’ll maximize your return while the market is in your favour.
  • You can reinvest your equity into other projects.
  • You’ll avoid potential surprises from the Developer as you can’t envisage the finished property.

Note: in Ontario, assignment sales are more common for newly built homes than resale properties, though you can use them for any type of trade.

Drawbacks of Assignment Sales for Sellers

  • There are often fewer buyers available for assignment sales than resale properties.
  • Assignment sales sometimes sell for less than resales because determining the property’s market value can be difficult when the property isn’t registered.
  • Profits made from assignment sales are taxable.
  • Developers usually require an assignment fee, which can vary hugely in price. The assignment fee may outweigh the point of the assignment sale.
  • If the Assignee can’t close on the property, the responsibility may still fall to you.

It’s important to note that most Developers don’t permit sellers to market assignments, which can make selling assignments difficult. If you do market an assignment, you risk breaching your contract. The Developer may cancel your contract and keep your deposit.

Instead of marketing your assignment, connect with an assignment sales specialist who has a database of active Buyers.

Why Buy an Assignment?

High demand in the resale market forces buyers into steep bidding wars. Meanwhile, assignment contracts often allow buyers to sidestep competition and pay less than they would for a resale property.

Keep in mind that many estate agents aren’t familiar with assignment sales and don’t advertise them. However, with an established specialist, you can source the best assignment deals on the market.

Benefits of Assignment Sales for Buyers

  • Your property will be brand new with luxuries such as state-of-the-art appliances and home automation.
  • You’ll enjoy immediate possession (reliant on occupancy period).
  • Assignments are often lower priced than the market value of similar resale properties, and it’s possible to bag excellent deals when an Assignor is in a rush to sell an assignment.
  • Assignments are typically sold well before the final closing date, ideal for those who need longer closing.
  • You can expand your search when you can’t find the property that you want on the resale market.

Drawbacks of Assignment Sales for Buyers

  • You’ll need a sizable deposit for an assignment in comparison to resale (5% is typical on resales versus 20% for new builds).
  • You’ll have to pay land transfer taxes and extra closing costs.
  • You’ll have to pay the deposit and any profits to the Assignor upfront. This can be cash-intensive, especially as you can’t get a mortgage until the final closing date.
  • It can be difficult to envisage the final project, so you may not get exactly what you are expecting property-wise.
  • You can’t negotiate the price/contract with the Developer – you must take the contract on as the Assignor negotiated it.
  • The Developer could cancel the project. They would refund your deposit, but it would be up to you to chase the Assignor for the profit that you paid. Of course, there’s no guarantee that the Assignor wouldn’t have already spent this.

Also, there are potential HST implications on the sale of newly built homes and condos. Unlike land transfer tax rebate and first-time buyer rebate, which are applied immediately at closing, HST is an upfront cost.

In Ontario, HST applies to all newly constructed properties. Developers’ advertised prices include HST, so many buyers don’t realize that tax applies to new homes. Also, Developers apply for the HST rebate on behalf of Assignees – this is factored into advertised sale prices.

Assignees must pay HST on the original price paid by the Assignor, as well as the HST included in the markup, before applying for the rebate. The markup is the difference between the price paid by the Assignor and the resale price paid by the Assignee.

We recommend this HST rebate calculator for a reliable estimate.

Where Can I Get Assignment Sales Advice?

Assignments are fantastic opportunities for buyers to secure brand-new properties without the two-to-five-year waiting period that is common with resales. Meanwhile, assignment sales offer sellers the freedom of moving forward with new property plans.

Either way, each assignment sale comes with its own set of complications, so you’ll need tailored advice from an expert. Get in touch with Storey Collective to speak with an expert who can discuss your situation and go over the math with you.