Assignment Sales Ontario 101: How Pre-Construction Deals Work
Assignment sales in Ontario may sound complex, but they are actually straightforward once you break them down. This guide will explain Assignment Sales Ontario basics in simple terms. An assignment sale happens when the original buyer of a pre-construction property decides to sell their purchase contract to a new buyer. This transfer takes place before the home is completed. In simple terms, you are selling the rights to a property before you officially own it. This allows the original buyer to pass on the deal to someone else. Assignment sales in Ontario are a key part of the pre-construction market. They can benefit both buyers and sellers. In other words, everyone can win.
What is an Assignment Sale?
Imagine you bought a condo that is still being built. You paid a deposit and signed a contract with the builder. However, before the condo is finished, you decide to sell this contract to someone else. This is known as an assignment sale. You are the original buyer (often called the assignor). You transfer your purchase agreement and all its rights and obligations to a new buyer (the assignee). The property itself hasn’t changed hands yet – only the contract has. Essentially, you’re selling the contract (the “paper”) rather than the physical property.
In Ontario, assignment sales are common for pre-construction condos, townhomes, and houses. Assignment Sales Ontario deals allow someone else to take over your purchase contract before closing. That’s the basic idea.
Why do assignment sales happen? Many Assignment Sales Ontario transactions happen because the original buyer’s situation has changed. Life can surprise us. Some people might need to move or change jobs. Others face money problems that make it hard to complete the purchase. Some buyers are investors who always planned to sell before closing to lock in a profit. They might have bought at a lower price and, as the market grew, decided to cash out early. By doing an assignment sale, they avoid having to pay final closing costs like land transfer taxes. They also don’t have to take on a mortgage for the property. Instead, they profit from the increased value by assigning the contract.
Assignment Sales Ontario: How Do They Work?
Let’s break down the process step by step.
Review the contract:
The first step in any assignment sale is checking if it’s even allowed. Builders in Ontario often include clauses in the purchase agreement about assignments. Some builders allow them freely, while others set conditions or charge a fee. It’s important to read your contract or have a real estate lawyer review it. If the contract says you can’t assign, then you can’t. Some contracts require the builder’s permission to allow an assignment. In either case, you must follow those rules. Most new construction contracts in Ontario do permit assignment sales. However, they usually require the builder’s written consent and often an assignment fee.
Finding a buyer:
Next, the original buyer needs to find someone who wants to take over the deal. This isn’t quite like posting a regular resale home on MLS (Multiple Listing Service). Often, Assignment Sales Ontario deals are marketed through agents’ networks, specific websites, or word of mouth. The pool of buyers is smaller because not everyone understands how assignments work. An experienced real estate agent can help locate interested buyers and navigate any marketing restrictions set by the builder. The Assignment Sales Ontario market is more niche, so expert guidance is valuable.
Negotiating the price:
When you find a potential buyer, the two parties negotiate terms. Remember that the builder has already set the original purchase price in the contract, and that price doesn’t change. So what do you negotiate? Typically, the new buyer (assignee) reimburses the original buyer (assignor) for any deposit they have already paid to the builder. They also agree on any profit to be added. Basically, this profit is the difference between the original price and the current market value.
For example, say you agreed to buy a condo for $400,000 (with a 15% deposit) and now it’s worth $450,000. You could then ask the new buyer to pay you back your $60,000 deposit. On top of that, you might request some or all of the $50,000 increase in value. Assignment Sales Ontario deals often involve this kind of deal, so having an experienced realtor or lawyer is helpful.
Builder approval and paperwork:
Before the assignment can happen, the builder usually must give written approval. The original buyer typically submits a request or application to the builder. They may also have to pay an assignment fee (this can range from a few hundred to a few thousand dollars). Once the builder consents and any fee is paid, a formal Assignment Agreement is drafted. This is a legal document that both the seller and the new buyer sign. It finalizes the transfer of the contract. For any Assignment Sales Ontario deal to work, getting the builder’s consent and proper paperwork in place are essential.
Closing the deal:
The assignment closing date often comes before the final closing of the property. On that date, the new buyer pays the remaining amount due to the original buyer as agreed. After that, the new buyer steps into the original buyer’s shoes in the contract. When the property is finally built and ready to be occupied, the new buyer will close on it directly with the builder. The original buyer is free from the contract at this point.
Assignment Sales Ontario: Benefits and Risks
Like any deal, there are pros and cons to consider.
Assignment sales offer several benefits:
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For sellers (assignors): You can take profit early if your property’s value has gone up. You also avoid many closing costs like land transfer tax. And you don’t need to get a mortgage for the property. If your life situation changes unexpectedly, an assignment lets you walk away without breaking the contract.
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For buyers (assignees): You get a chance to own a brand-new unit without waiting years for it to be built from scratch. Often, there’s less competition to buy an assignment because fewer people know about these deals. You might also have more certainty since many assignments happen when the project is near completion. That means there’s less risk of the project being canceled.
However, there are also risks and considerations:
Complex process:
Assignment sales can be more involved than a regular resale purchase. It’s wise to work with a real estate agent and lawyer who have experience with Assignment Sales Ontario deals. They can guide you through the process.
Extra costs:
The new buyer should be prepared for costs. They often need a large amount of cash upfront to reimburse the deposit. They also have to pay any price increase to the original buyer. There are legal fees and sometimes additional builder charges on the final closing. The builder’s assignment fee, if not waived, adds to costs.
Taxes:
In Ontario, assignment sales are subject to taxes. Since 2022, profits from an assignment sale are generally subject to HST (sales tax). The seller may also owe income tax or capital gains tax on any profit. It’s important to consult a tax expert so there are no surprises.
Builder rules:
Not all builders allow assignments. And even if they do, they can impose strict rules on how and when you can sell. For example, a builder might not let you advertise the sale publicly. They might also require that a certain percentage of the project is sold before any assignments are allowed. Always check the original purchase agreement for any restrictions.
Assignment Sales Ontario deals are an important part of the real estate scene, especially for pre-construction condos and homes. They provide flexibility for original buyers. They also give new buyers a chance to get into a project at a later stage. The concept may seem daunting at first. But it’s really about transferring a contract from one person to another. Now you know the basics of how assignment sales work in Ontario. You can decide if this approach fits your needs. Always remember to read your contract carefully and get professional advice before proceeding. With the right help, navigating an assignment sales Ontario deal can be smooth and beneficial for everyone involved.
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