What is an Assignment in Real Estate?

In the Greater Vancouver Area you hear the term assignment a lot. Sometimes the media will paint a not so good picture of what an assignment is. It is important to fully understand what an assignment is to be better informed about buying or selling real estate for yourself.

Definition of an Assignment: “An assignment is when a purchaser and a seller enter into a firm and binding contract then assigns the sale to another buyer before the completion date of the initial sale.”

In simpler terms, someone can buy the right to step into the original buyer’s shoes to complete the contract. You are selling the promise to purchase the unit because you do not actually own the unit yet.

The Original Purchaser is considered to be the assignor
The New Buyer is considered to be the assignee. The assignee is the one that will complete on the property.

Do assignments only happen with pre-construction condos?

You can technically assign any type of property assuming the original contract doesn’t stipulate differently. It is much more common to see pre-sale condos listed as assignments due to the nature of the timing and many of the buyers being speculative investors.

Why would someone want to assign a condo?

Pre-sale construction can take a long time, especially with high rise buildings. Some take as long as 5+ years to build. Over that period of time it is not uncommon for the buyer’s situation to change. This could be things as common as meeting the right person, having a child or getting a job out of town. What might have worked when the original purchase was made simply would not work anymore.

Another reason why someone would want to assign a property is for financial gains. Many speculative investors see the opportunity to make a quick gain before actually closing on the property. The Vancouver real estate market has seen many speculative investors buying mostly on transit in developing areas. Some of these areas include Brentwood, Metrotown, False Creek and West Coquitlam.

Finally a reason why someone would want to assign a condo is they don’t have the money to close on it. If the original purchaser had lost a job for example and could not secure financing, they would likely want to assign the contract or potentially lose the deposit and deal with other legal implications.

What can be negotiated with an assignment sale?

Since you as the Assignee would be taking over the original contract, it is unlikely anything can be renegotiated with the builder/developer as this already exists. Developers are unlikely to accommodate things such as changing the colour scheme.

Since the contract and deposit have already been solidified, what you are likely negotiating on is the new price of the Contract. Depending on the circumstances most sellers are looking to make a profit. The profit the seller makes above and beyond the original contract is referred to as the Lift.

It’s important to have a skilled real estate agent to help with the negotiation. This is a whole other topic that we would be delighted to chat about.

Builder Approval and Fees

Hopefully you chose to have a real estate agent represent you vs the developer when you first purchased the pre-sale condo as they would have pointed out some key details.

The builder or developer typically will allow for assignments but more times than not the building must be sold out or close to it. You have to be approved by the developer to list the property. It’s common as well that the listing agent will be limited to where they can market it. A good example is that many builders will not allow an assignment listing on MLS ( Multiple Listing System). This can make it more difficult to sell.

If the developer/builder does allow for assignments, they will typically charge an assignment fee. This is a fee to assign the contract. We have seen as low as zero and as high as 5% of the original purchase price. Typically, 1.5% to 2% is common.

How do I find a buyer with all these restrictions?

It’s important to engage a real estate agent with a vast network. The Wallace Green Real Estate Group for example has a mailing list of over 3000 people that have shown interest in pre-sales. It’s important that the agent you reach out to also has lots of experience with assignments as the contracts can be a little more confusing.

What are the tax implications of real estate assignment?

The best advice when it comes to taxes is to speak with an expert. We highly recommend speaking with a tax expert or your accountant. We will happily recommend someone as we can’t advise on this topic.

Generally speaking though when you sell an assignment property you will need to know about Property Transfer Tax, GST and Capital Gains. Please reach out so we can recommend an expert for you to connect with.

Costs associated with assigning a pre-construction condo

-Builder/Developer Assignment Fees ($500 to 5%)
-Realtor Fees – Typically 7% on the first $100,0000 and 2.5 to 3% on the balance split between the buying and selling agents.
-You can expect to pay your accountant for his advice as well as any taxes they mention
-Legal fees – with any sale of property legal fees are involved, typically around $1000

How does the closing of an assignment work?

There are basically 2 closings:
1. The closing between the Assignor and the Assignee, and
2. The closing between the Assignee and the Builder.

The first closing (the assignment closing) the original purchaser receives their deposit + any profit (Lift) from the Assignee. This can be done in several different ways, but the Assignor will typically want to receive the deposit and lift back. The timing of payments can be negotiable.

On the second closing (between the Builder and the Assignee), the Assignee pays the remaining amount to the Builder (usually after securing a mortgage) and pays land transfer title. The title of the property transfers from the Builder to the Assignee at this point.

To Assign or Not to Assign? That is the question

Our team has sold a lot of presale homes and over the years we have been asked the question many times if they should assign early on or hold on to the property until completion. Although every scenario is completely different here is a list of Pros and Cons:

The Pros of Assigning
-Get your deposit back and lock in your profit sooner
-Maximize profits at a moment in time vs waiting on an unstable market (Speak with your agent about key market indicators)
-Change in plans, life has a way of changing. Moving on sooner than later can be beneficial

The Cons of Assigning
-The buyer pool is typically much smaller. End users will not be able to see the unit.
- It can be difficult to market with lots of potential restrictions
-Typically speaking buyers are looking to get a little better price on an assignment. It might be hard to maximize the value vs a completed staged unit that you can see and feel
- Assignment sales can be complicated, so you want to make sure that you’re working with an agent who is experienced with assignment sales, and a good lawyer.

Are you thinking about Buying or Selling an Assignment in Greater Vancouver?
Our team is experienced with Buying and Selling Assignments. Please reach out at any time and we would be happy to help. The market for assignment is always changing and we would love to chat with you about the current opportunities from both sides.