Advantages of Presale Assignment of Contract

What is the Advantage of a Presale Assignment of Contract for the current buyer assigning the contract?

  1. The Advantage of a Presale Assignment for the assignor (current buyer) is that they can most likely avoid the Builder’s closing costs and property transfer tax associated with the subject property.
  2. The assignor might not have to pay the additional taxes (i.e. GST) rebate back to the Builder if they intended to occupy the property.
  3. The seller/assignor avoids the carrying costs (mortgage, maintenance fees, taxes, etc.) for the time between listing the property and selling a property that is already completed.

What is the Advantage of An Assignment for the new buyer?

  1. The assignee (new buyer) may receive a better price than other current properties on the market. This will also depend on the current buyer’s motivation to sell.
  2. Depending on when the assignment takes place, the assignee will receive a brand-new home and may also have the opportunity to make finishing selections, such as the kitchen or bathroom colour scheme.
  3. The assignee may be able to avoid Property Transfer Tax if the original Agreement of Purchase and Sale is under $750,000;
  4. The assignee may take advantage of the original buyer’s deposits and put less of a down payment on a property than he would otherwise have been able to.

Are there any restrictions involved with assignments when selling?

Yes, there are several restrictions that the developer can put into the contract that makes assigning a home more difficult.

The most common restrictions are:

  • Sales restrictions – The developer will often put restrictions on the number of units that can be assigned at a time and restrictions such as being unable to assign until the building is 100% sold. Refer to the contract for details on restrictions.
  • The developer or seller’s approval
  • Resale profits must be split with the seller unless otherwise agreed to in the contract.
  • Marketing can be very tricky. MLS (multiple listing service) restrictions for online marketing may be prohibited; many developers do not allow the advertising and sale of assignments until the building is sold out.
  • A time frame when you cannot assign the contract
  • An assignment fee will be paid to the developer in the presale scenario, usually 2-5% of the sale price.

Fees associated with an assignment.

If this is a resale home that you are assigning, you will most likely have to split the profits of the assignment with the seller unless otherwise agreed to. Typically there are extra legal fees, and there is an assignment fee to the Builder if it is a presale assignment.

As previously mentioned, most assignments have the new buyer taking full responsibility for the contract; however, it may be the case where the new buyer and the original buyer have agreed to split some adjustment costs.

You’ll be listing the property, so you must consider realtor commissions when assessing your net profits on an assignment.

Are there tax implications on assignments?

If you are unsure about the tax implications, it is always best to speak to an accountant to determine an estimate of what you may incur.

Generally, any profit from the assignment of a property that goes to the current buyer, after being split out to the seller if previously agreed upon, is subject to tax as part of your income. Regarding property transfer tax and any goods and services tax on the property, this is typically paid by the new buyer as they are responsible for taking over the contract of purchase and sale in its entirety unless otherwise agreed upon.

Are there risks involved?

It is imperative to ensure that the new buyer is willing and able to take on the assignment and all terms and conditions of the contract of purchase and sale. If the assignee, the new buyer, does not follow through with the completion of the sale, the responsibility to close usually defaults back to the original buyer, the assignor.

If you are considering assigning a property, talk to a realtor first to determine whether or not you will make a profit. They’ll need to look at your original contract and assess the current market to estimate the subject property’s market value.

There is no guarantee that there will be profit associated. There may be a loss in a declining market. Your realtor will have to factor in all associated costs, such as fees and commissions, for you to make the best decision.

If you’re thinking about assigning your contract, give us a call today to see what’s right for you.