Assignment Sales in Ontario – Your Questions Answered

Assignment sales have become an increasingly popular topic in the real estate market, especially in Ontario. But what exactly are they, and how do they work? Here, we’ll answer some of the most frequently asked questions about assignment sales in Ontario.

What is an Assignment Sale?

An assignment sale is a type of real estate transaction in which the original buyer (the “assignor”) sells their rights and obligations under the original purchase agreement to a new buyer (the “assignee”) before the property is fully constructed and ownership is transferred. Essentially, the term assignment sale means that the assignor sells the contract they have to purchase the property rather than the property itself.

This transaction often occurs with pre-construction properties that have not yet been completed or registered, such as in a condo assignment sale. In an assignment sale, the assignor can transfer their interest in the property to the assignee, who takes over all rights and obligations associated with the purchase agreement.

How Do Assignment Sales Work?

Assignment sales involve the transfer of a property purchase agreement from the original buyer (assignor) to a new buyer (assignee). Here’s a breakdown of the process:

1. The assignor enters into a purchase agreement with the developer or seller for a property. This purchase agreement outlines the terms and conditions, such as the price, payment schedule, and completion date.
2. The assignor will seek an interested party (assignee) to take over the contract.
3. Once a potential assignee is found, negotiations take place to agree on the terms of the assignment sale.
4. A legal document called the Assignment Agreement is drafted and signed by both parties. This agreement formally transfers the rights and obligations of the original purchase agreement from the assignor to the assignee.
5. The assignment is typically subject to the developer’s consent, as most original purchase agreements include a clause requiring the developer’s approval for any assignment. The developer may charge a fee and will need to review and approve the new buyer’s qualifications.
6. Once the developer consents, all parties involved, including the original seller, are notified of the assignment. This way, the transfer is legally recognized, and the involved parties understand all commitments.
7. The assignee fulfills the remainder of the obligations outlined in the original purchase agreement. This includes making any remaining payments and completing the closing process when the property is ready.

What are the Benefits of an Assignment Sale?

For the Assignor:

• An assignment sale gives the original buyer financial flexibility by recovering the initial deposit and other costs they have incurred.
• Since the assignor is not completing the final purchase, they can avoid paying certain closing costs, such as land transfer taxes and legal fees associated with taking full possession of the property.
• If the property’s value has increased since the original purchase agreement was signed, the assignor can sell their contract at a higher price, potentially making a profit without ever owning the property.

For the Assignee:

• Assignment sales provide an opportunity to purchase properties in high-demand markets that might have sold out quickly during the initial sales phase.
• In some cases, the assignee might be able to purchase the assignment at a price lower than the current market value due to a motivated seller or changes in market conditions.
• Since the property is often closer to completion at the time of the assignment sale, the assignee has a shorter waiting period before moving in or renting out the property than those buying directly from a developer during the initial pre-construction phase.

What are the Drawbacks of an Assignment Sale?

For the Assignor:

• If market conditions have changed unfavourably since the initial purchase, the assignor may need to sell the contract at a lower price than originally anticipated.
• Assignment sales can be complex transactions requiring significant legal and administrative work.
• The pool of potential buyers for an assignment sale is generally smaller than in traditional resale markets.

For the Assignee:

• Assignees often need to cover the initial deposit paid by the assignor, any premiums agreed upon, and potentially additional costs required to secure the property.
• Since the assignor originally signed the purchase agreement, the assignee may have limited options to customize or alter the property to their preferences.
• There is always a risk involved in purchasing a property that is not yet completed. Construction delays, changes in market conditions, or issues with the developer’s project can all impact the successful completion of the property, thereby introducing uncertainties for the assignee.

If you’re considering an assignment sale or have more questions about the process, trust the expertise and reliability of RE/MAX. Contact your local RE/MAX real estate agent today to get started on your assignment sale journey.