What is an Assignment of Sale in Preconstruction?

How Does the Assignment of Sale Work in Preconstruction?

An assignment sale is when the original buyer of a property allows another buyer to take over their agreement to purchase the property before they move in. This new buyer then completes the purchase with the seller. Assignments are commonly seen with condos, especially those that are still under construction and not yet ready for occupancy.

9 Key Steps in Selling a Property Assignment

1. Review Your Purchase Agreement – Carefully examine the terms of your original Agreement of Purchase and Sale to understand your assignment rights and restrictions.
2. Obtain Builder Approval – Secure permission from the developer confirming your property is eligible for an assignment sale.
3. Market Your Assignment – List your property for sale (note that MLS listings are typically restricted by developers).
4. Evaluate and Negotiate Offers – Have your REALTOR® manage incoming offers and negotiate optimal terms and price.
5. Secure Initial Deposit – Collect and place the first deposit in trust with your real estate brokerage or legal representative.
6. Address Conditional Clauses – Work through any conditions specified in the accepted offer with your sales team.
7. Verify Buyer Financing – Ensure the builder approves the purchaser’s financing documentation.
8. Collect Secondary Deposit – Receive the second payment, typically matching your original 15-20% deposit amount.
9. Complete Final Settlement – Receive the remaining funds at closing, representing the difference between your original purchase price and the final assignment sale price.

What are the Pros and Cons of an Assignment of Sale?

First, let us discuss the pros and cons if you are a seller of a unit looking to sell on an assignment sale. We will get to Buyer side too to review all the pros and cons of buying an assignment sale later.

Pros of Assignment of Sale for a Seller

Cons of Assignment of Sale for a Seller

• Watch out for possible taxes. When you sell your purchase agreement, it’s like selling a business contract, and the money you make might be seen as business income by the Canada Revenue Agency. This means it’s fully taxable, unlike selling a property, where you might get some tax exemptions.
  
  
• Be careful about selling too soon. Property values often go up after the building is finished and all the units are filled. It can be tricky to set a fair price because there won’t be other similar properties for comparison. You might have to look at different properties in other places to figure out a good price.
  
  
• Sometimes, the fee (also known as the assignment fee) for selling your purchase agreement can be so high that it’s not worth it. This is something you might not have thought about when you first bought the property.
  
  
• If the person who buys your agreement can’t finish the purchase, you might still have to do it. Even if you’ve already made money from selling the agreement, you’re still legally responsible for the contract. This could be a problem if you’re not ready to finish the purchase at short notice.
  
  
• You might have limits on how you can sell your property. For example, if you bought a property before it was built, the developer might not let you advertise it for sale in certain places. Breaking these rules could mean you’re breaking the original agreement you made. Usually, developers will give a warning before taking serious action, but it’s still risky to ignore the rules.

Now, let’s review the Pros and Cons for a buyer who is looking to invest in an assignment sale:

Pros of Assignment of Sale for a Buyer

• It might cost less than buying a similar property already on the market because the person selling the agreement has to offer a good deal to make up for the uncertainty of buying something that’s not built yet. Plus, property values might have gone up since they bought it, so there could be room to negotiate. But in a market where sellers have the upper hand or if the property is really popular, this might not be the case.
  
  
• It could be a good deal if the person selling the agreement is in a tough spot. You might be able to work out a deal that’s good for both of you, where you get a good price and they get out of a tough situation.
  
  
• You’ll get a completely new property that no one has lived in before. Who wouldn’t love that fresh, new feeling?
  
  
• New properties usually have the latest technology, like fancy glass walls, top-notch appliances, and smart home features. It’s all the cool, modern stuff.
  
  
• If you need more time before you actually buy, this could be a good option. Assignments are usually sold long before the final purchase date, so it gives you time to prepare.
  
  
• If you’re not finding what you want in the market for already-built homes, this could be a different way to look for what you need.

Cons of Assignment of Sale for a Buyer

• It can cost a lot of money upfront because the person selling the agreement will want their initial deposit and profit right away. You’ll need a big chunk of cash to close the deal because you can’t get a mortgage until the final closing date. Lenders usually want something valuable to secure their loan, but with interim occupancy, there’s no property title yet.
  
  
• There’s a risk that the developer might cancel the project. If that happens, you’ll get your deposit back with maybe a bit of interest, but you might have trouble getting the profit you paid to the original seller. It’s not common, but it can be a hassle if it does happen.
  
  
• You might not get what you expect. If you’re not used to buying from plans, the finished property might be smaller than you thought or have surprises that weren’t shown in the plans.
  
  
• You’ll have to pay for extra costs like development fees, utilities, and property taxes from the time the original buyer moved in until the final closing. If your REALTOR didn’t plan for these taxes, you might have to chase them down later.
  
  
• Since there’s no data on resale prices, you’re buying based on guesses. You don’t know if the property will be worth what you paid once it’s built.
  
  
• The time it takes to close can expose you to changes in the market. Interest rates might go up, or property prices might drop, affecting your finances.

Is Assignment of Sales Cheaper?

Assignment sales can indeed be cheaper than buying a condo or a house directly during the early stages of development. This is because pre-construction owners selling assignments are usually eager to sell their units quickly to reinvest their capital elsewhere, or they simply can not get a mortgage to close the sale contract.

How much does it cost to sell as an Assignment sale?

When selling an assignment, let’s say, John, the seller of a condo unit, will encounter multiple types of fees. These fees typically include the builder’s assignment fee, real estate commissions, and taxes on the profit made from the sale.

For example, let’s say John purchased a pre-construction condo for $300,000 and later decided to sell his assignment for $350,000. Here’s how the fees might break down:

1. Builder’s Assignment Fee: This fee can vary widely but is usually between $1,500 to $25,000. In some cases, particularly high-demand projects, it can go as high as $80,000.
   
   
2. Real Estate Commissions: Both John’s realtor (the assignor’s agent) and the buyer’s realtor (the assignee’s agent) will typically receive commissions. These commissions are negotiable but generally add up to around 5% or less of the final sale price. For our example, let’s say it’s 5%, which would be $17,500 based on the $350,000 sale price.
   
   
3. Taxes: Depending on John’s tax situation, he may need to pay income tax, capital gains tax, or HST on the profit made from the assignment sale. It’s crucial for John to consult with his accountant to understand and plan for these tax obligations.
   

So, in this example, John would need to deduct the builder’s assignment fee, real estate commissions, and any applicable taxes from the $50,000 profit ($350,000 sale price minus the $300,000 purchase price) to determine his net earnings from the assignment sale.

Remember, you can list your preconstruction unit on sale for free on our website. To list, simply email us at info@homegram.ca. There’s no hidden fee to list on our website. Please note, you will still be responsible for taxes, commission of the buyer’s side agent, assignment fee, and other legal fees.

Is the Assignment of Sale taxable in Canada?

• Taxes on assignments can be straightforward, but they often confuse buyers and sellers, especially when it comes to HST taxes.
  
  
• There are two types of HST taxes to consider with preconstruction assignments:
  • For new homes, the builder pays the HST, and there’s a $24,000 rebate for end-users, so they don’t directly see the HST.
  • Investors buying pre-construction homes usually pay around $24,000 in HST but can claim a rebate if they rent out the property for a year.
  • Living in the home during interim occupancy can make it ineligible for the end-user HST rebate.
  • The second HST tax relates to the profit made from the assignment sale, which can be subject to a 13% HST tax.
  • Additionally, returns of deposits might also be subject to HST in some cases.
    
    
• The third tax consideration is income or capital gains tax on the profit. Any property that’s not your main home or part of a business is taxable.
  
  
• It’s crucial to consult with an accountant before selling an assignment to understand whether you owe HST, capital gains tax, or income tax on the sale. They can give you the best advice on managing these taxes.

Common mistakes when selling an assignment sale:

• Hiring inexperienced representation or not seeking professional advice:
  • The process of buying or selling an assignment is different from buying a resale home, and mistakes can be avoided with experienced realtors and lawyers.
    
  • Buyers and sellers often assume their realtors’ paperwork is correct and skip having their lawyer review the assignment paperwork, leading to potential issues.
    
    
• Poor communication and understanding:
  • Lack of communication led to misunderstandings in recent assignments, such as incomplete information about property finishes.
    
  • Clear clauses and agreements can help protect parties, but effective communication is key.
    
    
• Missing deadlines or delays:
  • Assignments involve multiple parties and strict deadlines, unlike resale properties.
    
  • Timely paperwork and signatures are crucial to avoid nullifying the deal due to missed deadlines.
    
    
• Incomplete buyer vetting:
  • Assignees must have mortgage preapproval and funds available promptly to avoid delays or complications.
    
  • Thoroughly vetting buyers helps prevent issues like the assignor having to close the deal if the assignee cannot.
    
    
• Misunderstanding fees:
  • Builder contracts and fees can vary widely, including deposits, upgrades, lawyer fees, and taxes.
    
  • Understanding the specific fees and when they are due is essential to avoid surprises and financial issues during the assignment process.
    

Top Legal Considerations and Clauses For Assignment Deals

Importance of Specialized Legal Representation

• Expertise Matters: Every assignment deal is unique, making it vital to hire a lawyer with extensive experience in these specific transactions.
• Changing Regulations: Laws regarding assignments evolve over time, requiring a lawyer with specialized knowledge to navigate successfully.
• Team Recommendations: Working with professionals who have successfully closed assignment deals can provide valuable legal referrals when needed.

Critical Legal Aspects of Assignment Transactions

• Developer Approval Required: The deal isn’t officially completed until the project’s developer provides formal written approval.
• Seller Cancellation Rights: During this approval period, the seller retains the ability to cancel the sale (though this rarely occurs).
• Profit Realization Timeline: No profit is realized on an assignment sale until the building is registered and the deal officially closes.
• Deposit Structure: The assignor receives their initial deposit and 15-20% deposit back, but additional profits aren’t disbursed until the building’s registration.

Marketing and Listing Limitations

• MLS Restrictions: Unlike resale properties, assignment listings typically cannot legally utilize MLS or Realtor.ca platforms.
• Alternative Marketing Channels: Sellers must rely on specialized databases, targeted marketing, and industry connections to find qualified buyers.
• Maximizing Sale Price: Working with professionals who have access to condo-specific buyer databases and marketing channels is crucial for optimizing returns.

Building Your Assignment Transaction Team

• Complete Professional Support: Successfully navigating an assignment requires a coordinated team of real estate professionals, lawyers, and accountants.
• Unique Transaction Type: Assignment purchases differ significantly from resale properties, as buyers are essentially purchasing an agreement until the property registers and reaches occupancy.
• Specialized Knowledge: Each team member should have specific experience with assignment transactions to properly advise on the unique complexities involved.

Market Analysis for 2025

The market for assignment sales in Canada in 2025 is expected to be shaped by several key factors, inferred from available data and trends from 2024, given the lack of direct 2025-specific analyses for assignment sales. The following table summarizes the main influences:

Factor	Impact on Assignment Sales	Details
Interest Rates	Potentially decreasing, increasing demand	Reports suggest lower borrowing costs in 2025 could make financing easier, boosting buyer interest.
GST on New Constructions	13.5% GST may reduce attractiveness	Introduced in 2023 to curb speculation, this tax could deter investors, impacting transaction volumes.
General Housing Market Trends	GST on New Construction	CREA and CMHC forecasts indicate a market rebound, potentially benefiting assignment sales by increasing buyer activity.
Regional Variations	Rebound is expected due to pent-up demand and lower costs	2024 data showed regional differences, likely to persist, affecting local assignment markets.
First Home Savings Account	Could increase first-time buyer activity	Over 150,000 eligible Canadians can contribute up to $8,000/year, potentially boosting demand for assignment sales.
US Tariff threats	Creating uncertainty in the market	Increasing inflation, yet again, along with US tariff threats is giving mixed signals to buyers and sellers.

How to Find Assignment of Sale Listings?

Assignment listings have a unique aspect—they’re not allowed on the MLS or major real estate websites. Instead, you need to rely on your network of realtors or secondary platforms like Homegram.ca, Kijiji, and Facebook to find them.