What Does It Mean to Sell on Assignment in Canada?

In an assignment sale, the original buyer is the assignor. The assignor sells their contractual rights and obligations to the assignee preconstruction.

With high-interest rates and declining property values, buyers are considering assignment sales. Mortgages are expensive, and mandatory stress tests make it harder to get financing.

If you can’t sleep because you’re worried you won’t be able to close on a home and reneging on the contract is far too expensive, consider an assignment sale.

In this post, we educate you about assignment sales in Canada, so you can confidently navigate the competitive real estate market. You’ll learn what an assignment is, its legal considerations, the benefits, and mortgage and tax implications.

• What does an assignment sale involve?

A pre-assignment sale in real estate is where the assignor sells their right to buy a home to the new buyer, the assignee.

Builders include an assignment clause in the Agreement of Purchase and Sale(APS). The clause allows buyers to sell their rights and obligations before they take possession of the house.

It is crucial to ensure that a condominium contract includes an assignment clause before deciding to sell. Note that the sale happens before the building is complete.

The assignee signs an agreement and commits to complete the final and closing payments. Assignees cannot renegotiate the terms and adopt the initial buyer (assignor) contract.

You can assign different property types. These include townhouses and condos. Still, they must be incomplete, and the APS must allow assignments.

• What are the reasons for selling an assignment?

Preconstruction homes take 4 to 7 years to complete. During the time lag, lifestyle changes happen, and the market value of condominiums increases.

Investors buy units intending to sell their rights to make a profit. Other individuals have a family home in mind they buy. But due to lifestyle changes or financial difficulties, they find themselves forced to sell their rights.

A couple who bought a 2-bedroom preconstruction home may need to sell and buy a 3-bedroom bungalow to cater to their growing family. A family may relocate due to job transfers and finding a semidetached house in their new residence. So they want to sell a preconstruction home they’d bought.

Changing interest rates that lead to high mortgages can also push buyers to sell their homes before closing.

In 2022, the Bank of Canada raised interest rates from a longstanding 1% to over 6% to curb inflation.

Buyers unable to close home sales are now looking to assignment sales as an alternative to breaching their contracts. Their concerns are the serious financial implications of a breach of contract. They also feel mortgage rates are too high. Staying and struggling to complete closing costs is unreasonable.

• Who should you talk to when selling an assignment?

When ready for an assignment sale, build a team of a realtor experienced in assignment sales, a real estate agent, and a tax accountant.

The realtor will know of assignment sales you could never have heard of. That’s because there are limitations to marketing assignment sales. For most assignment sales, you cannot list on popular platforms, and finding a buyer is challenging. 

An experienced real estate lawyer will offer sound advice on assignment sales and documentation. The tax accountant will help with additional taxes. 

Some builders require payment and approval for assignment sales. It is mandatory to pay taxes on capital gains from the assignment sale. There are also extra costs for assignment sales, such as the realtor commission and legal fees.

• What are the mortgage implications of an assignment sale?

Assignees cannot obtain a mortgage on the closing of the sale. An assignee is only eligible for a mortgage after the building registration and the land transfer.

Is it worth buying an assignment sale? Advantages of buying an assignment sale

As we noted earlier, listing assignment sales on popular platforms is illegal. Buying an assignment deal has many advantages. You get the best value in an uncompetitive market that few know about. 

Some agents are unfamiliar with the ins and outs of assignment sales. The market is, thus, uncompetitive, and often assignment market prices are lower than resales or pre-unit sales.

You also avoid bidding wars in the highly competitive resale or pre-unit sale markets. You pay significantly higher for a house in these markets than for assignment sales. 

Depending on how far the construction is, you may have the option of personalized finishes and upgrades. The assignee can move in (interim occupancy)and close sooner than the 4 to 7 years wait. You also get a house with a 7-year Tarion Warranty. 

The assignor sells the unit without waiting for the builder to complete the building, often at a profit. Profit is not guaranteed, and you may sell for a loss depending on the market price. 

• Final thoughts: Engage an experienced realtor with assignment sales expertise

The complicated process of an assignment sale can be daunting, from finding a buyer to knowing how to do it. Working with an assignment sale expert who can assist you throughout the process and get you the best deal is essential.