Sell a property before you take possession as a preconstruction assignor.
Welcome to assignment selling, the investment strategy that allows you to buy more with less.
You could just make a handsome profit.
Preconstruction Buyer or Assignor?
Assignment selling has its own special lure.
As the original owner, you get all the perks of new home valuations, without (generally speaking) the risk of losing your deposit or being sued if you change your mind about owning.
Being an assignor allows you to buy a home and sell your interest in it before the possession date. As long as the agreement of purchase and sale doesn’t restrict assignment selling, an assignor can sell any property before possession.
How Being an Assignor Works
Let’s say you buy a presale condo. While you are waiting for it to be built, you lose your job. Since the condominium isn’t completed or registered, you don’t own it yet. So rather than giving up your purchase deposit, you sell your contract with the builder and get some or all of your deposit back. The new buyer takes over your agreement of purchase and sale as is. What’s in the agreement of purchase and sale.
As long as you haven’t taken final possession, you can take advantage of assignment selling after you move in. That’s because what you own during the interim occupancy period is an interest in your unit, not the unit itself. The buyer assumes all the obligations and rights attached to your interest when you dispose of it.
Selling a property before possession makes you the assignor and the buyer the assignee. Now imagine how you could turn being an assignor into an investment strategy. You can even use it for resale homes by speculating that prices will go up between when you buy and assign a property. Buy and finance income property in Ontario.
When You Assign a Property…
Assignment selling is similar to marketing any home, but with a few distinct features.
- You pay the developer the full purchase deposit.
- The new buyer (the “assignee”) refunds your deposit, plus or minus any profit or loss you made on the assignment.
- The assignee pays the land transfer taxes and typically HST. They pay the balance owed for the property, receive the title and take possession. Calculate land transfer taxes in Ontario.
- You pay a real estate commission and legal fees.
- The developer may also charge you a fee and request to approve the buyer.
- On the upside, you avoid carrying costs (“occupancy fees”) while the unit is built but not yet registered.
- And, the assignee pays the closing costs.
You’re free to move on or re-invest.
Axess Law reviews these details with you and makes all of the necessary legal arrangements. Our real estate lawyers handle any problems that arise with the assignee or developer.
Setting a Price in Assignment Selling
Assignments can sell for less than you paid, especially if real estate values have declined or you are competing with other sellers. Buyers may also offer less since the building is unfinished. Your unit can take longer to sell and resale values are a complete unknown, making setting the fair market value tricky. Are assignments a good deal?
On the other hand, prices may have increased between the time you sign the agreement of purchase and sale and assign the agreement to another purchaser. That can result in an assignment selling for more than you agreed to pay the builder.
Because the assignee is taking over your contract as assignor, the new buyer can’t negotiate with the developer. They can only negotiate the price with you, giving you (the assignor) a chance to profit. Ultimately, it’s wise to consult a realtor to help you decide on a fair price.
Tips for Selling Assignments
- Don’t dawdle if you plan to profit from being an assignor. The developer may not consent if your unit is nearing completion or your sale competes with their marketing of unsold units.
- Check if your agreement of purchase and sale restricts advertising or prevents listing assignments on the MLS. Your agreement may be cancelled and you may lose your deposit if you do so.
- Word of mouth is a powerful way to promote assignment selling. Tell your friends and colleagues to spread the word.
Look for realtors who specialize in assignment selling and can help you find a buyer. Buy assignment properties.
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