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10 Essential Things to Know About Real Estate Assignment Sales (for Sellers)

— We take our content seriously. This article was written by a real person at BREL.

What’s an assignment?

An assignment is when a Seller sells their interest in a property before they take possession – in other words, they sell the contract they have with the Builder to a new purchaser. When a Seller assigns a property, they aren’t actually selling the property (because they don’t own it yet) – they are selling their promise to purchase it, along with the rights and obligations of their Agreement of Purchase and Sale contract.  The Buyer of an assignment is essentially stepping into the shoes of the original purchaser.

The original purchaser is considered to be the Assignor; the new Buyer is the Assignee. The Assignee is the one who will complete the final sale with the Builder.

Do assignments only happen with pre-construction condos?

It’s possible to assign any type of property, pre-construction or resale, provided there aren’t restrictions against assignment in the original contract. An assignment allows a Buyer of a any kind of home to sell their interest in that property before they take possession of it.

Why would someone want to assign a condo?

Often with pre-construction sales, there’s a long time lag between when the original contract is entered into, when the Buyer can move in (the interim occupancy period) and the final closing. It’s not uncommon for a Buyer’s circumstances to change during that time…new job out of the city, new husband or wife, new set of twins, etc. What worked for a Buyer’s lifestyle 4 years ago doesn’t always work come closing time.

Another common reason why people want to assign a contract is financial. Sometimes, the original purchaser doesn’t have the funds or can’t get the financing to complete the sale, and it’s cheaper to assign the contract to a new purchaser, than it is to renege on the sale.

Lastly, assignment sales are also common with speculative investors who buy pre-construction properties with no intention of closing on them. In these cases, the investors are banking on quick price appreciation and are eager to lock in a profit now, vs. waiting for the original closing date.

What can be negotiated in an assignment sale?

Because the Assignee is taking over the original purchaser’s contract, they can’t renegotiate the price or terms of the contract with the Builder – they are simply taking over the contract as it already exists, and as you negotiated it.

In most cases, the Assignee will mirror the deposit that you made to the Builder…so if you made a 20% deposit, you can expect the new purchaser to do the same.

Most Sellers of assignments are looking to make a profit, and part of an assignment sale negotiation is agreeing on price. Your real estate agent can guide you on price, which will determine your profit (or loss).

Builder Approval and Fees

Remember that huge legal document you signed when you made an offer to buy a pre-construction condo? It’s time to take it out and actually read it.

Your Agreement of Purchase & Sale stipulated your rights to assign the contract. While most builders allow assignments, there is usually an assignment fee that must be paid to the Builder (we’ve seen everything from $750 to $7,000).

There may be additional requirements as well, the most common being that the Builder has to approve the assignment.

Marketing Restrictions

Most pre-construction Agreements of Purchase & Sale from Toronto Builders do not allow the marketing of an assignment…so while the Builder may give you the right to assign your contract, they restrict you from posting it to the MLS or advertising it online. This makes selling an assignment extremely difficult…if people don’t know it’s available for sale, how they can possibly buy it?

While it may be very tempting to flout the no-marketing rule, BE VERY CAREFUL. Buyers guilty of marketing an assignment against the rules can be considered to have breached the Agreement, and the Builder can cancel your contract and keep your deposit.

We don’t recommend advertising an assignment for sale if it’s against the rules in your contract.

So how the heck can I find a Buyer?

There are REALTORS who specialize in assignment sales and have a database of potential Buyers and investors looking for assignments. If you want to be connected with an agent who knows the ins and outs of assignment sales, get in touch…we know some of the best assignment agents in Toronto.

What are the tax implications of real estate assignment?

Always get tax advice from a certified accountant, not from the internet (lol).

But in general, any profit made from an assignment is taxable (and any loss can be written off). The new Buyer or Assignee will be responsible for paying land transfer taxes and any HST that might be due.

How much does it cost to assign a pre-construction condo?

In addition to the Builder assignment fees, you will likely have to pay a real estate commission (unless you find the Buyer yourself) and legal fees. Because assignments are more complicated, you can expect to pay higher legal fees than you would for a resale property.

How does the closing of an assignment work?

With assignment sales, there are essentially 2 closings: the closing between the Assignor and the Assignee, and the closing between the Assignee and the Builder. With the first closing (the assignment closing) the original purchaser receives their deposit + any profit (or their deposit less any loss) from the Assignee. On the second closing (between the Builder and the Assignee), the Assignee pays the remaining amount to the Builder (usually with the help of a mortgage), and pays land transfer taxes. Title of the property transfers from the Builder to the Assignee at this point.

I suppose it could be said that there is a third closing too, when the Buyer takes possession of the property but doesn’t yet own it…this is known as the interim occupancy period. The interim occupancy occurs when the unit is ready to be occupied, but not ready to be registered with the city. Interim occupancy periods in Toronto range from a few months to a few years. During the interim occupancy period, the Buyer occupies the unit and pays the Builder an amount roughly equal to what their mortgage payment + condo fees + taxes would be. The timing of the assignment will dictate who completes the interim occupancy.

Assignments vs. Resale: Which is Better?

We often get calls from people who are debating whether they should assign a condo they bought, or wait for the building to register and then sell it as a typical resale condo.

Pros of Assigning vs. Waiting

• Get your deposit back and lock in your profit sooner
• Avoid paying land transfer taxes
• Avoid paying HST
• Maximize your return if prices are declining and you expect them to continue to decline
• Lifestyle – sometimes it just makes sense to move on

Cons of Assigning vs Waiting

• The pool of Buyers for assignment sales is much smaller than the pool of Buyers for resale properties, which could result in the sale taking a long time, getting a lower price than you would if you waited, or both.
• Marketing restrictions are annoying and reduce the chances of finding a Buyer
• Price – What is market value? If the condo building hasn’t registered and there haven’t been any resales yet, it can be difficult to determine how much the property is now worth. Assignment sales tend to sell for less than resale.
• 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.

Still thinking of assignment your condo or house ? Get in touch and we’ll connect you with someone who specializes in assignment sales and can take you through the process.

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Raj Singh says:

What can be things to look for, especially determining market value for an assigned condo? I’m the assignee.

Sydonia Moton says:

Y would u need a lawyer when u buy a assignment property

Gideon Gyohannes says:

Good clear information!

Who pays the assignment fee to the developer? Assignor or Assignee?

Thanks Gideon 416 4591919

Melanie Piche says:

It’s almost always the Seller (though I suppose could be a point of negotiation).

Fiona Rourke says:

If there are 2 names on the agreement and 1 wants to leave and the other wants to remain… does the removing of 1 purchaser constitute an assignment

Brendan Powell says:

An assignment is one way to add or remove people from a contract, but not the only way…and not the simplest. Speak to your lawyer for advice on what makes the most sense for your specific situation. For a straightforward resale purchase you could probably just do an amendment signed by all parties. If it’s a preconstruction purchase with various deposits paid, etc it could be more complicated.

Katerina says:

Depends on the Developer. Some of them remove names via assignments only.

Haroon says:

Is there any difference in transaction process If assigner or seller of a pre constructio condo is a non resident ? Is seller required to get a clearance certificate from cRA to complete the transaction ?

Nathalie says:

Hello , i would like to know the exact steps for reassignment property please.

Amazing info. Thanks team. I may just touch base with you when my property in Stoney Creek is completed in. 2020. I may need to reassign it to someone Thanks

Victoria Bachlowa says:

If an assignor renegs on the deal and refuses to close because they figured out they could get more money and the assignment was already approved by the builder and all conditions fulfilled what can the Assignee do. I have $33,000 dollars in trust in the real estate’s trust fund. They sent me a mutual release which I have not signed. The interim occupancy is Feb. 1 and the closing is schedule for Mar. 1, 2019. I have financing in place, was ready to move in Feb. 1 and I have no where to live.

Definitely talk to your lawyer right away. They’ll want to look at your agreement of purchase and sale and will be able to advise you.

With assignment sales, there are essentially 2 closings: the closing between the Assignor and the Assignee, and the closing between the Assignee and the Builder. With the first closing (the assignment closing) the original purchaser receives their deposit + any profit (or their deposit less any loss) from the Assignee. Can I assume that these closing happen at the same time? I’m not sure how and when I would be paid as the Assignor.

What happens to the deposits or any profits already paid if the developer cancels the project after an assignment?

Hi, Did you get answer to this? I did an assignment sale last year and now the builder is not completing apparently and they are asking for their money back. Can they do that? After legal transactions, the lawyer simply said “the deal didn’t go through”. Apparently builder and the person who assumed the assignment agreed on taking out the deal. What do I have to pay back after it was done a year ago

This is definitely a question for your lawyer – as realtors we are not involved in that part of the transaction. I would expect that just as the builder would have to refund your deposits, you would likely need to do the same…but talk to your lawyer. As to whether the builder can cancel a project, yes they always reserve that right (but the details of how and under what circumstances would be in your original purchase agreement). It’s one of the annoying risks in buying preconstruction!

I completed the sale of my assignment in Dec 2015 however the CRA says I should be reporting the capital income in 2016 when the assignee closed his deal with the developer in July 2016. That makes no sense to me since I got all my money in Dec 2015. Can you supply any clarification on that CRA policy please?

You’d have to talk to the CRA or an accountant – we’re real estate agents,so we can’t give tax advice.

Hassan says:

Hello, You said that there are two closings. The first one between the assignor and the assignee and the second one between the builder and the new buyer (assignee). My question is that in the first closing does the assignee have to pay the assignor the deposit they have paid and any profit in cash or will the bank add this to the assignee’s mortgage?

The person doing the assigning usually gets their money at the first closing.

Kathy says:

What is the typical real estate free to assign your contract with the builder ?

Hi Kathy While we do few assignments (as they are rarely successful, and builders do not make it easy), in past we have charged more or less the same as we do for a typical resale listing. While there are elements to assignments that should be easier than a resale (eg staging), many other aspects of assignments are much MORE time-consuming, and the risk much higher since attempts to find a buyer for assignments are often unsuccessful. It’s also important to note that due to the extra complication, lawyer’s fees to assign are typically higher than resale as well–although more $ for the purchase side vs the sale side.

Mitul Patel says:

If assignee has paid small amount of deposit plus the original 25% deposit that the assignor has paid to the builder and gets the Keys to the unit since interim possession has been completed, when the condo registration is done and assignee is getting mortgage from the Bank or Pays the remaining balance to the Builder using his savings and decides not to pay the Balance of the Profit amount to Assignor, what are the possibilities in this kind of scenario?

You’d need to talk to a lawyer to find out the options.

David says:

How much exactly do brokers get paid at sale of Assignment? i.e. Would the broker’s fee be a % of your assignment selling price or your home’s selling price? I’m really looking for a clear answer.

I am using this website’s calculator associated with selling your home in Ontario. But there is no information on selling assignments. https://wowa.ca/calculators/commission-calculator-ontario

Realtors set their own commission, so there is no set fee- that website is likely the commission that that agent offers. We often see commissions of 4-5% for assignments. The fee is a % of the price of the assignment – for example, you originally bought for $500K; you’re now assigning for $600K – commission would be payable on the $600K.

Candace says:

Question: if i bought a pre construction condo, can i sell it as soon as it closes or do i have to live in it for 1 year after closing in order to avoid capital gains taxes?

Or does the 1 year start as soon as you move in?

I would suggest you talk to your accountant re: HST credit implications and capital gains, but if you sell it for more than you paid for it, capital gains usually apply.

You mention avoid paying HST when you assign your property. What is the HST based on? It’s not a commercial property that you would pay HST. Explain. Thanks.

HST and assignments are complex and this question is best answered specific to your situation by your accountant and real estate lawyer. In some cases HST is applicable on assignment profits – more details can be found on the CRA website here:

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/gi-120/assignment-a-purchase-sale-agreement-a-new-house-condominium-unit.html

If you are a podcast listener, the true condos podcast is also a great resource.

https://truecondos.com/cra-cracking-down-on-assignments/

heres one for your comment, purchase pre construction from builder beginning of 2021, to be finished end of 2021, (semi detached) here we are end of 2022, both units are now ready. Had one assigned but because builder didnt accept within certain time frame(they also had a 90 day clause wherein we couldnt assign prior to 90 less firm closing date (WHICH MOVED 4 TIMES). Anyrate now we have a new assinor but the builder says we are in default from the first one and wants 50k to do the assignment (the agreement lists the possibility of assigning for 12k) Also this deal would include us loosing our whole deposit and paying the 12k(plus fees) would be in addition too the 130k we are already loosing. The second property we are trying to close but interest rates are riducous, together with closing costs(currently mortgage company is asking that my wife be added to that one, afraid to even ask this builder. Any advice on how to deal with this asshole greedy builder? We are simply asking for assignment as per contract and a small extension for the new buyer(week or two) Appreciate any advice. Thank you

Dealing with builders/developers can be extremely painful, much worse than resale transactions in our experience. Their contracts are written to protect THEM. Unfortunately all I can say is follow the advice of your lawyer.

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Rashid Notash, Broker

416-500-5360 | [email protected]

The Condo Assignment Process: Everything You Should Know

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September 15, 2018 | Selling

Condo assignment sales are different from typical pre-construction transactions. Whether you’re on the buyer or seller side, the condo assignment process is unique—which is why you should take the time to learn about the costs, timelines, and other specifics involved.

If you’re thinking about buying or selling a condo on assignment, here’s what you should know…

What is a condo assignment sale.

An assignment sale occurs when a pre-construction condo buyer decides to sell before closing. Since they don’t technically own their unit (which may not be completed yet), what they’re really selling is their purchase agreement with the builder.

The concept sounds simple. However, there are some ins and outs that both sellers and buyers should know to ensure that their transaction is legally above board—and in their best interests.

Seller FAQs

Thinking of selling your pre-construction condo on assignment? Here are some answers to the most commonly asked questions sellers have about the process.

Should I sell my condo on assignment?

Pre-construction buyers often sell condos on assignment as part of an investment strategy. That said, there are other instances where going this route makes sense.

Maybe your lifestyle has changed, and the unit you were excited about a year ago is no longer ideal. Perhaps you’re facing some financial challenges, and you need some cash in the short term. Whatever your circumstances, a real estate agent with condo expertise can help you decide if selling on assignment is right for you.

What are the tax implications of selling on assignment?

While there’s nothing wrong with assignment sales, some Canadian investors have gotten themselves in hot water for making them without paying taxes on their profits. Regulators have been cracking down on these transactions, which is why knowing your taxation responsibilities is crucial.

The bottom line? If you’re making an assignment sale, it’s best to speak with a financial expert before moving forward.

Does the builder need to be involved?

Your Agreement of Purchase and Sale will specify whether selling your condo on assignment is permitted. Either way, you should obtain consent beforehand. There’s a very good chance that builder approval of an assignment sale is a condition in your contract—so read it carefully.

How much will it cost to sell on assignment?

If the builder signs off on your sale, you’ll probably still have to pay a fee. This sum could range from a few hundred dollars to several thousand, and in some instances it is waived by the developer. You should also be aware that, along with the regular costs associated with selling, your legal fees may be higher than they would be for a simpler transaction.

Will I get my deposit back?

A purchaser who is buying on assignment (also known as an “assignee”) usually pays the assignor their full deposit. As part of a typical deal, you should receive the amount you’ve paid to date, sometimes along with your profit, on closing day.

How can I find a buyer?

Be aware that there are marketing restrictions placed on most assignment sales. While it depends on the terms of your agreement with the builder, you probably won’t be able to post on the MLS or online.

If you market your assignment in violation of your contract, the builder may be able to cancel your agreement—and hold onto your deposit. For this reason, working with an agent who knows the local condo market is your best bet for finding a buyer.

Are you thinking of purchasing a pre-construction condo on assignment? Read answers to some of the most common questions buyers have first.

When is buying a condo on assignment a good idea?

If you’re excited about a particular condo development that has no remaining inventory, buying on assignment could be your way into the building. In many cases, the price for a unit is lower when it’s sold this way than it would be if it were on the market as a resale unit.

On the flip side, assignment sales tend to be more complicated than traditional condo transactions. They often entail costs, risks, and legal minutiae that aren’t part of conventional resale and pre-construction purchases.

An agent with condo market expertise can help you weigh the pros and cons of including assignment sales in your condo search.

Can I renegotiate the terms of the agreement in place?

No. When you buy a condo on assignment, you’ll be expected to fulfill the terms and conditions that the original buyer agreed to (and take on any potential risks associated with them). For this reason, it’s very important that you protect your interests by working with an experienced real estate lawyer.

Fortunately, you may be able to negotiate with the seller (or “assignor”) regarding the specifics of your purchase with them. Assignors are often in the midst of a life transition, and they may be eager to make a deal and move on.

Which costs will I pay?

Along with the sum you’ve agreed to, you will almost certainly be expected to pay the assignor the amount they’ve put towards their deposit to date. Unless your contract specifies otherwise, you will be responsible for final closing costs including (but not limited to) land transfer taxes, development fees, Tarion fees, and HST if applicable.

As part of the assignor’s original agreement, development charges may be capped. If this is the case, you could wind up spending significantly less money—so it’s worth looking into.

How will closing work?

Closing on an assignment sale can be complicated for the assignee. You’ll have to go through the process twice: once when your deal is finalized with the assignor, and again when you close with the builder. During the first closing, you’ll pay the assignor their deposit and sometimes the profit. The profit portion could be renegotiated and paid on the second closing. During the second, you’ll pay the developer the remainder of what’s owed.

Don’t forget about the occupancy period! Once your unit is fit to be occupied, you will pay a sum that’s approximately equal to your monthly mortgage payments and condo fees until the building is registered.

What else should I know?

In addition to understanding the assignment process, you should be aware of the pros and cons that go along with buying a pre-construction condo. Your purchase will come with certain risks that the original buyer was willing to take on—such as delays to closing. On the flip side, there’s nothing quite like moving into a beautiful, brand new condo.

When handled correctly, condo assignment sales can be beneficial to buyers, sellers, and developers. Just remember that understanding the process is the key to success—which is why working with the right real estate and legal professionals is so important!

Interested in buying or selling a pre-construction condo? Let’s discuss it! Call or shoot me a text at 416-500-5360, or email me at [email protected].

Buying Condos on Assignment — A Quick Guide

Buying condos on assignment is becoming the norm in the real estate business. Investors use this strategy to purchase a condo cheaply and sell before closing to maximize profit. Understanding what a condo assignment is can be difficult, especially for newbies in the niche. Our team will discuss condo assignments and what you need to know before diving in to your next investment. 

What Is a Condo on Assignment Sale?

A condo on assignment sale is a written document issued to the purchaser of a pre-construction condo unit from the builder or an investor intending to sell. This agreement indicates that since the building hasn’t been officially registered, no one can take possession of the condo unit. However, you are allowed to sell the agreement to an interested buyer before the building is fully registered.

You will only get full ownership of the building after the final closing date – the period when the property title will be transferred to you. Once the property has become registered, you can sell the property and the title. It’s after the closing date that you will begin your mortgage payment.

Remember, the condo unit isn’t officially yours, even after making your down payment. You will only get a condo assignment sale as proof of your down payment and not the property’s title until after the closing date.

Why Purchase a Condo on Assignment?

There are reasons why buying condos on assignment is a familiar strategy investors and realtors use these days. If you already bought a pre-construction condo, you can maximize profit before closing and registration by selling the contract to another buyer. This is called “flipping.”

If you also have to relocate or out of cash, you can sell the contract to an interested buyer and get your money. Here, the agreement can protect you from accruing further costs.

Another reason to purchase a condo on assignment is that you’ll be buying at a price less than the market value when it’s completed. 

Important Factors to Remember

When buying a condo on assignment, you need to keep the following factors in mind.

You will be liable to pay taxes, such as Land Transfer Tax and other legal fees after the final closing date. Our experts recommend that you employ the services of a tax advisor for proper guidance.

Down Payment

Buying a condo on assignment sale demands that the builder collects a down payment from you. The deposit structure varies from builder to builder and the current phase of the building construction, but the typical range is between 15% – 30% of the total price of the building.

The builder must approve all the transactions regarding assignment sales. Some builders may not approve until the date of assignment sale is near the final closing date to avoid any confusion on whose name the property will be registered to.

You are mandated to provide Proof of Sufficient Funds to show that you can pay for the purchase before the builder can issue the contract. The remaining amount after the initial down payment is paid in the form of a mortgage.

The builder automatically assumes that you are using your condo as your primary residence after registration. Therefore, you become obligated to assign the HST Rebate entitlement to the builder.

Real Estate Broker

You need the help of a professional and seasoned real estate broker to help you with the transaction and ensure that it goes smoothly. This is because the paperwork involved is relatively complicated, and many agents or real estate brokers may not fully understand how condo on assignment sale works. 

Closing an Assignment Sale

When buying a condo on assignment sale, you will be responsible for closing costs once the builder registers the building. These costs include Land Transfer Tax, Utility Connection Fees, Development Charges, etc. [1] However, you are exempted from HST if you plan on using your condo as your primary residence. 

When purchasing a condo on assignment sale, you need to take note of the following:

• Assignment closing date (when the transaction is completed)
• Occupancy closing date (the first date when the builder hands over the keys to the purchaser)
• Final closing date (when the title of the property is transferred to you)

How do you buy an assignment for a condo?

To buy an assignment for a condo, you must be ready to purchase one of the pre-construction condo units from the builder. Afterward, you can request an assignment from the builder, showing that you own one of the units.

How does a condo assignment work?

A condo assignment transfers partial ownership of the building from the builder to the buyer. When buyers decide to purchase a pre-construction condo unit, they agree with the builder, signifying partial ownership.

When buying condos on assignment, it’s vital that you go through all these factors, as explained by our real estate experts, to avoid any complications, especially during the closing dates. An error could jeopardize your chances of buying a pre-construction condo, so take your time while going through the transaction. 

More pages:  

• Toronto condo and housing bubble 
• Advantages and disadvantages of condo living 
• Expenses of condo building 
• Assignment sale in Toronto
• Assignment sale in Vancouver
• Purchasing condo in Canada  

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Selling your pre-construction assignment in the current market

Many preconstruction buyers are facing the realities of a shifting real estate market, especially those who have purchased preconstruction properties, specifically for assignment. Last quarter was the worst quarter for new condo sales since the financial crisis and this past July, Condo sales in Toronto hit a 23-year record low.  Toronto Condominiums accounted for 828 units sold in July, down 39 per cent from July 2022 and 50 per cent below the 10-year average. An assignment is typically a transaction where a purchaser buys a unit from a developer and sells the purchase contract to another buyer prior to closing.

Essentially, it’s the paperwork trading hands, for a profit.  Assignment sales are also usually not listed on public platforms such as MLS and are conducted privately between agents. An assignment sale in real estate refers to the transfer of a purchase agreement from the original buyer (assignor) to a new buyer (assignee) before the completion of the property.

In this type of transaction, the assignor essentially sells their rights and obligations under the original purchase agreement to the assignee. The assignee steps into the assignor's position and assumes the responsibility of completing the purchase and taking ownership of the property. Assignments can occur in both pre-construction and resale properties and can provide opportunities for buyers to purchase a property before its completion or for sellers to exit a purchase agreement before closing. Assignments used to be a hot segment for speculators buying preconstruction projects as prices in major Canadian markets like Toronto, Vancouver, and Calgary saw record price appreciation during the pandemic. With rising interest rates and price drops in Canadian Real Estate, assignment sellers are now finding themselves in a very difficult situation .  

In recent years, part of the attraction to assignment sales for real estate investors has been the fact that they only need to put the deposit down rather than have full mortgage financing activated.  The contract is typically sold well before closing and the investor doesn’t need to deal with closing the property, avoiding closing costs, getting a mortgage, and holding the property. With consumer confidence at record lows, the buyer pool for assignments has shrunk significantly, leaving preconstruction investors in a lurch as their closing dates approach. If you purchased a preconstruction home or unit with plans to assign the unit, here is what we’ve typically seen transpire in recent months.

Challenges with closing preconstruction assignments

Potential default on closing preconstruction assignments.

If you cannot successfully assign your pre-construction purchase contract, you're still liable to close on the property, as per your agreement with the developer.  Failing to close may mean breaching your agreement and can lead to the loss of your deposit and potential litigation from your developer, where a court can find you to also be liable for the difference between your agreed purchase price to the current market value, plus legal fees incurred by your developer.

Qualifying for a mortgage at a higher interest rate

Unless you have access to cash to pay in full and close your purchase, you will likely need to qualify for a mortgage to satisfy the purchase price and closing costs.  Since most preconstruction purchase contracts were signed in a low-interest-rate environment, qualifying for a mortgage can become a challenge.  With current rates and the stress-test, most buyers need to qualify at 8-9% interest rates, leading some buyers to seek other financing options such as private financing or alternative lenders, which typically come in at higher rates and fees to account for the added risk.

Appraisals coming in lower

If you can qualify for a mortgage, most lenders will request that an appraisal be performed on the property prior to approving your mortgage.  This is where your appraisal can potentially come in lower than what you have agreed to purchase the property for.   Every lender has their loan-to-value (LTV) ratios in place and when an appraisal comes in lower, they will only lend to up to that LTV. For example, if you purchased a condo unit for $800K two years ago and assumed you are getting a mortgage at 75% LTV, your plan was for a lender to finance $600K, with the remaining funds coming from you.  Let’s assume the appraiser determines that in today’s market, your unit is only worth $700K.  Your lender will now only lend you up to $525K, leaving you to come up with an additional $75K in order to close. Appraisals coming in below purchase value have become more common recently.

Selling the assignment at cost or below purchase price

With current market conditions, selling an assignment for a profit may be considerably more challenging.  Both investors and end-users who are would-be purchasers of assignments are no longer in the market, leaving a limited pool of investors who are on the lookout for great deals.  Some developers have even lowered their current prices to attract new buyers and may be competing with your assignment. In some cases, selling your assignment at a slight loss may be a better option than defaulting on your closing.  If you agree to sell your assignment at the original purchase price or below it, it means you still must cover Real Estate Commissions (since you cannot list your assignment on MLS, most assignment deals are done privately between agents), and legal fees.  Depending on the circumstance, you may essentially "pay" the buyer to take on the assignment. Compared to defaulting on your purchase agreement and facing litigation, selling at a slight loss might be a viable option if you are not able to close or rent out the unit.

Closing and renting

Many buyers are opting to close their pre-construction property and wait out the market by renting the property for a while.  One thing to keep in mind is that you may not be the only one with the same idea.  Other owners in a building or the area may be looking to rent at the same time, creating an influx of rental inventory, which may reduce the rental pool and rental prices.  If you are purchasing a condo, you’ll need to check your agreement as to whether you are allowed to legally rent during the interim occupancy period. Depending on how long you plan to keep your property rented, or vacant, you’ll need to be mindful of new regulations coming into effect in 2023 such as the Toronto Vacant Home Tax and the Federal Government’s anti-flipping laws .

The bottom line

The short-term outlook for the preconstruction and assignment market isn’t a great one.  If you plan to assign a preconstruction property, you need the right financial and legal advice to understand all of your options prior to making a decision.   Make sure you speak to your Real Estate Agent, Mortgage Broker and Lawyer to clearly understand your options and how to navigate your situation.

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Assignment Sales Explained

If you live in Downtown Toronto, you can attest to the fact that its skyline is scattered with cranes, its soundscape is mainly comprised of digging and drilling, and its road closures are abundant. Now that we've set the tone, the premise of this article is a byproduct of the emotion-inducing, 12-letter word: construction. In this article, we'll be diving deep into assignment sales; what they are, what makes them different, and the tips you need to know in order to smooth sail your way through the assignment sale process.

What is an assignment sale?

In order to understand what an assignment sale is, we'll need to touch on pre-construction properties. Buying a pre-construction property means that you purchase a property before it's ready, sometimes even before its construction has even begun. Building developers usually start pre-construction sales early on, meaning you can buy a condo in a coveted building and desirable area for a fairly reasonable price (sounds impossible, right?) - but here's the catch, it won't be ready for a couple of years. The upside is that it will most likely have appreciated in value by the time you receive it, making it a smart investment. As soon as you buy a pre-construction property, you are entering an agreement with the builder until the property is ready.

Now an assignment sale is when the original buyer of a pre-construction property sells their contractual interest in the property to a new buyer, meaning that they resell the pre-construction property before taking possession of it. The sale must be done before the original buyer takes registered possession of the home for it to be considered an assignment sale. As such, the second buyer (the purchaser of the assignment sale) is the one who completes the transaction with the original seller (the builder). To put it simply, it's basically a purchase of the agreement between the builder & the original buyer, so that the new buyer automatically becomes the new owner of the property once it's completed.

How do assignment sales work?

Since we've covered the assignment sale basics, let's get more technical - the property being sold is still not registered with the land registry office and is probably still under construction. This makes it quite different from a regular sale, in more than one way. Let's get into the main attributes that make this type of purchase unique.

A Larger Deposit

When purchasing a property via assignment sale, there is usually a larger than normal deposit. The deposit in an assignment sale takes into consideration the deposit paid by the original buyer to the builder (usually 20%), plus additional profit that the seller is hoping to gain. Since the original buyer (now the seller of the agreement) is making a profit on the property above the downpayment already paid,  these assignment sales can be very cash intensive - this is the single biggest deterrent for most buyers.

For instance, Buyer A purchases a pre-construction property from the developer of the project (the builder) for $500,000. Buyer A pays a 20% deposit ($100,000) over a two year span to the builder. Before the project is completed, Buyer A decides that they are no longer interested in going through with the purchase and would like to sell the unit, at this point (two years later) the market price of the property has now reached $550,000. Buyer A lists the unit for sale for $550,000, and the new buyer (Buyer B) would have to pay Buyer A their original deposit of $100,000 (20%), plus the property's appreciation of $50,000. The total deposit that Buyer B will have to pay is $150,000 which, at this point, would be higher than the 20% usually required to obtain a mortgage on an investment property.

Builder's Requirements & Consent

Another factor to keep in mind is that the assignment sale cannot take place without the builder's consent. If you're thinking of buying a pre-construction property only to then re-sell it as an assignment sale and turn a profit, this is definitely a factor worth considering. The builder reserves their right to hold back on consent for assignment sales and most only allow one assignment to be completed prior to final closing.

Therefore, as the buyer in an assignment sale, you'll only be able to take over the original purchase agreement between the builder and Buyer A with the consent from the builder. This usually entails the builder requiring mortgage approval documents, ID, and additional information from the new buyer. Then there would be an assignment agreement executed between the builder, original buyer, and you (the new buyer). Needless to say, this is not the case with a regular sale - in a regular sale, the only consent you will need is that of your own and the seller.

No Showings

Adding to the growing list of factors that make the assignment sale process different, showings do not exist here. Since, in most cases, an assignment sale is done before the building is even ready, the buyer is unable to physically see the property before purchasing it. As the buyer in an assignment sale, you'd be able to see floor plans, mock-ups, and images. In some cases, you'd also be able to head to the builder's sales center and see/touch the finishes (eg. kitchen cabinets, countertops, tiles, appliances, etc.). You may also see the status of construction of the building by visiting the development site, to get an idea regarding the stage of project.  

Since this requires a lot of trust, we recommend doing your research on the city's reputable builders & the neighbourhood of the development to make sure its the right for you. It's worth noting, however, that if the assignment sale is taking place during occupancy - when the original buyer has occupied the unit but is not yet in full possession of it - you might be able to see the unit in person.

Increased legal fees

Within the process of an assignment sale, you'll find that there is additional paperwork (Builder's consent, assignment agreement, etc.) and stages (occupancy closing, final closing, etc), which in turn leads to more legal hours. Lawyer fees for these types of sales are usually higher than a traditional sale because there are more contractual technicalities involving more than one party (Buyer A, the builder and Buyer B). Our advice would be to discuss these fees with your lawyer, in order to paint a more accurate picture of the what you can expect.

Occupancy Fees

When buying a property via assignment sale, you are essentially buying a pre-construction property through a third party (Buyer A). With pre-construction properties, you get physical possession of the home (known as occupancy) before you get full possession of the home on paper (known as final closing). Therefore, occupancy fees are fees that you have to pay from the time you get possession of the home (occupancy phase) until the time you take official title of the property (final closing). Final closing usually occurs after the building is completed and has reached a certain percent of total occupancy.  At final closing is when you would your mortgage would kick in. During the occupancy phase, you can expect the occupancy fees to be roughly the same amount as your mortgage payments would be with 20% down.

Additional Closing Costs (Levies)

To add to what seems like the never-ending fine print, you might come across a number of additional fees when it comes time for final closing. Most contracts with a builder state that the buyer might incur additional costs that will only be specified upon final closing. The main additional fees are levies charges, also known as development costs; these are costs that the builder incurred while constructing the building, which they pass on to you as the buyer.

The size of these fees really depends on more than one factor: the builder, the city, and the project are a few to list. However, in most cases, you may have the builder set an upper cap limit on these fees - also known as Capped Levies. That way you know that the additional charges will be have a maximum upper limit that they wont exceed. Typically in Toronto, most developers cap development charges for one bedrooms to $7,500, $15,000 for two bedrooms, and over $20,000 for three bedrooms but please keep in mind that these are just ballpark numbers and the exact capped amount varies.

It's essential to look at the original agreement between the assignment seller and the builder to see if levies are capped and at what amount. If the levies are not capped, you will have to assume the risk of higher-than-anticipated closing costs at the time of taking title to the property. Of course,  there are also the common costs associated with homeownership which include land transfer taxes, legal fees, and possible mortgage fees.

HST on Pre-construction

Last but not least, it's critical to consider HST (Harmonized Sales Tax) when buying via assignment sale, which essentially means you're purchasing a pre-construction property. As a buyer, the HST of 13% in most cases is actually already included in the purchase price of the pre-construction property and the builder then applies for their rebate. However, it's important to touch on the fact that buying a pre-construction property solely for investment may alter this structure.

If you are purchasing the property solely as an investor, and neither you or a direct family member will be occupying the unit, then you would have to pay the HST at final closing and apply for the New Residential Rental Property Rebate (NRRPR) after leasing the unit for one year. For more information regarding qualifications and the amount of the rebate, visit this publication from the CRA.

If you're purchasing the assignment for yourself and it will be used as a primary resident then you'll have to confirm that the HST is included in the purchase price of the assignment.  For more information you may also visit the CRA's info sheet here .

When it comes to HST and the status of your occupancy, you should always consult with your accountants and lawyers as each circumstance is unique.

Why do people purchase/sell on assignment?

Well, after much unbiased consideration, it's safe to say that purchasing/selling on assignment can be a win-win scenario for both parties - the assignment seller gets a price above purchase price and the buyer, in most cases, snags a property below market price. Since assignment sales tend to occur well into the construction phase, there's also less risk imposed on the buyer in an assignment sale. That being said, there are a number of reasons why a person might want or need to sell/buy a property on assignment:

Selling Reasons:

• Change of plans: since pre-construction homes can take years to be completed, the original buyer situation could have changed within that time. For example, the original buyer may have started a family and is now looking for a larger, more suitable home.
• Financial trouble: the financial situation of the original buyer may have changed over the years, and they're now put in a position to have to sell the property. For example, the original buyer may have lost their job, meaning they can't get qualified for a mortgage and are now unable to complete the purchase.
• Profit: it's very common for investors to buy pre-construction homes with the aim of re-selling them to turn a profit. This is usually a common scenario for assignment sales in the Toronto real estate market.

Buyer Reasons:

• Brand new building/area: it can simply be that the purchaser is looking for a property that has never been occupied, or is in a newly developed neighbourhood, or just wants to secure a property in a new, buzz-worthy development. An example of this is Nobu Toronto.
• Below market price and less competition: since these purchases require at least 20% down-payment, in most cases it could be that these units have less competition and can be purchased at somewhat of a bargain.
• Profit: again, investors also look to buy properties via assignment sale because they believe that the building or neighbourhood will continue to appreciate in value, and come time of total completion or a few years later they would be able to sell for higher.

Looking to buy a home in Toronto or the Greater Toronto Area (GTA)? Message us via the live chat on Dwelly.ca and start the conversation.

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What You Need to Know About Assignment Sales

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What is an assignment sale? We get this question quite often from both investors and end-users when it comes to the Toronto condo market, especially with the dramatic rise in condo buildings and pre-construction sales. Assignment sales can be a great opportunity for everyone involved, from the seller to the buyer. But working with a seasoned real estate broker is one of the most important things you can do. An assignment sale isn’t a typical transaction and there are many things you need to know before moving forward.

What Does an Assignment Sale Mean?

An assignment is a sales transaction where the original buyer of a property (the “assignor”) allows another buyer (the “assignee”) to take over the buyer’s rights and obligations of the Agreement of Purchase and Sale, before the original buyer closes on the property (that is, where they take possession of the property). The assignee is the one who ultimately completes the deal with the seller. In other words, an assignment clause allows the buyer of a home to sell the place before they take possession of it. Although an assignment sale is possible for both home and condos, it’s much more popular among condo pre-construction buyers.

Why Would Someone Want to Sell Their Condo on Assignment?

With pre-construction condo purchases, the sale of suites typically takes place several years before the building is built. It’s a long time in between buying the suite and actually taking occupancy of it. And with this lag time comes life changes – a new job outside of the city or in a different province, a new family that’s expanding with children, etc. What worked for a particular buyer years ago may not be the current case at closing time.

Financial reasons is also another reason to sell on assignment. Perhaps the purchaser can no longer be able to close on the condo, or perhaps it’s an investor who bought pre-construction with no intention of closing on them, therefore using an assignment sale strategy to profit, based on quick appreciation in the area.

Often with pre-construction sales, there’s a long lag between when the original contract is entered into, when the Buyer can move in (the interim occupancy period) and the final closing. It’s not uncommon for a Buyer’s circumstances to change during that time…new job out of the city, new husband or wife, new set of twins, etc. What worked for a Buyer’s lifestyle 4 years ago doesn’t always work come closing time.

How Do Assignment Sales Work?

We completed an assignment sale for a client at 87 Peter Street which was a new building that has occupied, but not registered yet. Our client purchased a 1-bedroom, 1-bathroom condo pre-construction for $320,000.00. He was looking to sell the unit on assignment and listed it at $525,000.00. We received an offer of $500,000 which the seller was comfortable accepting.

Typically, when assignment sales takes place, the seller is looking for a buyer who can provide him with a purchase deposit that equals what he had to put down – usually 20% of the original purchase price. After providing the seller with this sum, the deposit paid to the builder now becomes the new purchasers deposit. Any upside to the seller can be paid based on the negotiated terms – sometimes when the seller gets a mortgage for the condo, or even earlier – it’s all based on terms of the assignment deal.

Overall, assignments sales are not to be overlooked – there can be some fantastic opportunities to get into a highly desirable building that you may have missed out on or purchase a condo that you may otherwise not have had access to. But the importance of working with a realtor and lawyer who know the ins and outs of these deals is the key to making them work for you.

If you’re interested in learning more about Assignment Sale and some of the great opportunities currently available, simply fill out the form below – we’ll get in touch right away.

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Selling Real Estate

Mar 20, 2024

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6 minute read

In real estate, there are a number of different types of transactions that come with their own unique benefits and challenges. People are most familiar with a standard purchase or sale of a home that already exists (ie. a resale property). However, the exchange is quite different when someone decides to buy a pre-construction home (typically from a builder) that hasn’t been lived in. A further nuance is an assignment sale, which can occur in both the resale and pre-construction space.

With all that said, assignment sales aren’t widely understood and can often be confusing for those venturing into them. That’s why we put together this comprehensive guide on assignment sales in Ontario! If you find yourself reading this, it's likely you're seeking a deeper understanding of what assignment sales are, their significance, and how they can impact both buyers and sellers. In this blog, we aim to answer all your questions about assignment sales and their nuances. 

Understanding Assignment Sales

First things first, what exactly is an assignment sale? It's like passing the baton in a relay race before the finish line. In real estate, this means the original buyer (assignor) transfers their rights to buy a property to someone else (assignee) before they officially own it. The transfer allows the assignee to take over the assignors rights and obligations outlined in the Agreement of Purchase & Sale (APS). Assignments usually happen in pre-construction projects but can occur in other types of property transactions too. Put simply, an assignment enables the buyer of a home to sell the home before they take ownership of it. 

Why Assignment Sales Happen

Assignment sales can take place for a whole suite of reasons, but typically they occur when the buyer's personal circumstances have changed. This could be related to their financial circumstances, lifestyle changes, work relocation, etc. Especially when it comes to pre-construction, a commitment to purchase typically happens well in advance of the move in date. This leaves a lot of time for things to change for the buyer, potentially requiring them to exit the deal before the closing date. An assignment presents them with a great way to transfer responsibility of the APS to another individual, without having to incur the penalties that might come with trying to back out of the purchase altogether. 

For an assignee, an assignment can be an attractive way to purchase a property. They may be able to take advantage of a drop in value of the property since the assignors purchase or they may have just missed the opportunity to buy the property in the first place. Either way, an assignment provides them the right to purchase a property in a way that is beneficial to them.  

The Process of an Assignment Sale

Imagine you've agreed to buy a brand-new condo that's still under construction. Unfortunately, sometimes life just happens, and you decide not to go through with the purchase. Enter the assignment sale. Here's how it unfolds:

Original agreement: You've signed on the dotted line to purchase the condo.

Change of heart: For whatever reason, you opt not to finalize the purchase.

Finding a new buyer: You find someone who wants to take over your agreement.

Sealing the deal: You both sign an assignment agreement, transferring your purchasing rights to them.

Closing time: The new buyer finalizes everything with the developer.

This process might sound straightforward, but it's laden with legal, financial, and contractual nuances that need careful navigation. This is why it’s essential you engage a real estate lawyer as soon as possible in the process. They’ll be able to advise you on your legal rights and obligations that come with an assignment. 

Advantages of Assignment Sales

So, why consider an assignment sale? For sellers, it's a graceful exit from a property purchase, possibly with a profit if the property's value has increased. Buyers, on the other hand, can snag properties in developments that are no longer on the market or have appreciated in value since their initial sale.

Challenges and Considerations

But it's not all rainbows and butterflies. Assignment sales come with their own set of challenges. There are legal hoops to jump through, financial implications such as taxes and fees, and the ever-present risk of deals not going as planned. This is a legally binding contract so both parties need to do their due diligence and, most importantly, seek professional advice. This includes advice from a real estate agent, real estate lawyer, and a tax professional. While that all might sound expensive, not getting the right advice before committing to an assignment could turn out to be much more costly. 

There have also unfortunately been some bad actors in the assignment space in the past. The good news is that regulators have stepped in to provide better oversight in the space in order to protect consumer, but no regulator is perfect. This just emphasizes the importance of engaging multiple professionals in your assignment, to ensure that you’re getting unbiased and valuable advice.

Navigating the Market

The assignment sales market is a vibrant and ever-changing landscape, heavily influenced by geographic nuances and existing market conditions. This variability means that opportunities for assignment sales can differ significantly from one region to another, often reflecting the local demand for real estate, economic stability, and the pace of new development projects. For individuals keen on exploring assignment sales, whether as potential buyers or sellers, understanding these regional market dynamics is essential.

One effective strategy for identifying great assignment sale opportunities involves monitoring developments that have reached their sales capacity. Sold-out projects often indicate a high demand for properties within a particular area or development, making assignments from these projects particularly appealing to those looking to enter or invest in these sought-after locales.

Not to keep harping on the need for guidance and expertise when navigating the world of assignments, but I’m going to! The specialized nature of assignment sales requires real estate professionals who possess a deep understanding and experience in this specific segment of the market. Real estate agents who specialize in assignment sales can offer invaluable insights, facilitate connections between buyers and sellers, and navigate the complex regulatory and contractual landscape associated with these transactions.

Assessing the value and potential of an assignment sale requires a comprehensive approach. Potential buyers should conduct thorough due diligence, including reviewing the original purchase terms, understanding any restrictions or conditions imposed by developers, and analyzing current market trends to gauge the property's potential for appreciation. For sellers, determining the right price point and understanding the best timing to enter the market are crucial steps in maximizing returns on their investment.

Wrapping Up

And there you have it—a comprehensive guide to navigating the waters of assignment sales. Whether you're looking to buy or sell, understanding the ins and outs of these transactions can make all the difference. So, consult with professionals, do your due diligence, and who knows? Your next real estate adventure might just be an assignment sale.

At Doormat , we have experienced real estate lawyers that can help you navigate the tricky world of assignments. We can also support you with your standard property purchases, sales, refinances, ownership changes, and status certificate reviews. If you have any questions, reach out !

Co-founder and COO

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Assignments (minimizing the risks?)

• Thread starter district
• Start date Jan 22, 2011
• Jan 22, 2011

What are the steps involved to minimize the risks associated with purchasing a condo by way of assignment? Of course, I will get a lawyer to help me once (and if) I find something I am interested in purchasing. However, I like to do my homework beforehand. If anyone has any links on this topic, please post them. I would love to read the information you have. Finding an assignment would be, for me, the most convenient way to proceed (I absolutely have enough money to pay cash for the down payment required and I need to sell my condo in another city before I can purchase something in Toronto). The reason why an assignment would be convenient for me is that I would have an idea when the condo I am purchasing would be ready. I would have time to sell my condo and move in to my new home (I would not have to borrow money to purchase my new condo). I would prefer purchasing a preconstruction but I need a place in Toronto and I am not willing to wait about 3 years for the place to be built. Assignments involve more risks but I have to admit that I need to educate myself more on this topic to see if I really want to go that route. Here, they give some very brief information on the potential risks associated with assignments: http://www.fic.gov.bc.ca/pdf/alerts/ConsumerAlert200805.pdf They mention; “consider all your options, such as whether the deposit and “lift” will be paid to the assignor upon signing the agreement or held in trust until some later date. Generally, it is preferable from the assignee’s perspective if money is released to the assignor only after the unit is built and title is being transferred”. Do the majority of assignor agree with this (reasonable) request?  

Senior Member

• Jan 23, 2011

I have no first hand experience but what I have heard is that most assignors expect to get their downpayment back when the assignment is signed with the difference to be paid on closing. The assignor obviously will want use or at least interest on his money from the date of assignment so while it may be reasonable, in a market where the assignor is pressed, he may accept but if he has demand for the unit, he won't be in a position to be forced to accept that he have his deposit money tied up any longer than necessary. Obviously to assure yourself you would have to have an iron clad agreement viewed by the lawyer and proof that the money you paid to the assignor if you have to is with the developer and applied toward the property at closing. You could write in a clause I would think that would state that should for whatever reason the purchaser's deposit that you have paid back to the purchaser not be applied in full towards the final purchase that the purchaser lowers the purchase price by a corresponding amount. In fact, I would suggest to you that most assignors will want out of the deal and their money immediately. Obviously I would not agree to pay the difference between ask and the original price up front, but I don't know that it is entirely reasonable to expect the assignor to keep his capital tied up for what may be another year or 2, especially bringing in no interest. I will be curious to hear other peoples views. Maybe there are some lawyers on the forum or agents who have experience who can enlighten us further.  

• Jan 30, 2011

Thanks for your reply interested! We’ll see if anyone else can comment on this topic.  

I purchased via assignment. Had to pay the downpayment up front. Then pay the rest at closing. Luckily the assignor put down a small downpayment. 3 years ago when I was looking at assignments... some people wanted all the money including profit up front...which could work out to $100K (ridiculous). Then there are some who are good with 5% up front then the rest at closing. The process can be a little overwhelming as you have to figure out what finishes/upgrades the assignor got (I bought from plans), make sure the floorplan is correct. Then you have to deal with the builder who can drag their feet on these things. I got a great deal though. Need to have a good lawyer who has worked with assignments before. And after all that, you have to make sure he builder transfers all their documentation to your name. I remember moving in and them still having everything (including my key) under the assignor's name. Interested gave some good advice. Not sure if I'd ever to an assignment again.  

I purchased via assignment and it was a long and arduous process. I found the unit on craigslist and got my realtor to contact the listing realtor. I had recently sold my condo so I had the cash to pay back the seller's deposit plus their profit. A few problems though - the floorplan had changed (unit got smaller by about 60 sq ft plus balcony disappeared) which I realized when viewing the building sales website. It took a few weeks for builder to confirm the floorplan indeed changed and seller to concede on price due to the smaller layout. My realtor was invaluable in helping on this point. Then I went to my lawyer and he said his involvement wasn't necessary for the name change on the original contract. whaaat? I wanted them to just confirm the assignment was legit and they offered to write a letter to builder to obtain confirmation. $350 later the builder ignores the letter so I call and email the builder who finally confirmed in writing to me that the assignment was accepted. Really I did not need a lawyer for this transaction (other than to review contract beforehand as you would be prudent to do when purchasing pre-con). I then had to follow up with builder for the PDI as I didn't trust that they would call me. On occupancy everything was in my name so no issue there and closing was a breeze compared to the nightmare of finalizing the assignment. It was a TOTAL pain in the arse and completely worth it in the end. A few months later when listings started to show up on MLS my size unit was listing for $60K more than I paid. wooo hooo! I'm not sure I would do it again, though. It was stressful and you really have to take a leap of faith if the unit is still under construction and you can't see the finished product, as was the case with me.  

dogbiskit said: It was a TOTAL pain in the arse and completely worth it in the end. A few months later when listings started to show up on MLS my size unit was listing for $60K more than I paid. wooo hooo! I'm not sure I would do it again, though. It was stressful and you really have to take a leap of faith if the unit is still under construction and you can't see the finished product, as was the case with me. Click to expand...

If you're willing to put up with the hassles and have the large downpayment, then assignments can be a huge deal late in the process of a development. They usually go for around 10-20% less than current market value of the unit if it had been closed.  

Active Member

• Feb 1, 2011

Question for anyone? Do you think it's more profitable to assign/sell a unit, or close on the unit and then sell if you already have a primary residence? For instance, you buy pre-construction for 469k. You can assign the unit at a cost of 3k. If you have a potential sale for 60k more than what you paid, minus the 3k for assignment fee that would give you a profit of 57k. Then you would have to pay 50% capital gain on the property on 50% of the profit which would be about 15k. So your overall profit would be about 42k (57k - 15k = 42k). Now, what if you close on the property and let's say it costs 3-4% of the overall purchase price which costs you about 18k. If you sell the unit for 60k more than what you paid, and take away the 18k for closing costs that would equal 42k as well. Or should you consider that your sales price will increase much more once the building is finished and registered and the units are selling for far more than they would as an assignment. My question is do you think it's better to sell as an assignment or sell after closing? Which one would yield the biggest return/profit? Am I missing something in my analysis? Anyone's input would be appreciated. Thanks.  

MadMax said: Question for anyone? Do you think it's more profitable to assign/sell a unit, or close on the unit and then sell if you already have a primary residence? For instance, you buy pre-construction for 469k. You can assign the unit at a cost of 3k. If you have a potential sale for 60k more than what you paid, minus the 3k for assignment fee that would give you a profit of 57k. Then you would have to pay 50% capital gain on the property on 50% of the profit which would be about 15k. So your overall profit would be about 42k (57k - 15k = 42k). Now, what if you close on the property and let's say it costs 3-4% of the overall purchase price which costs you about 18k. If you sell the unit for 60k more than what you paid, and take away the 18k for closing costs that would equal 42k as well. Or should you consider that your sales price will increase much more once the building is finished and registered and the units are selling for far more than they would as an assignment. My question is do you think it's better to sell as an assignment or sell after closing? Which one would yield the biggest return/profit? Am I missing something in my analysis? Anyone's input would be appreciated. Thanks. Click to expand...

• Feb 2, 2011

cdr is right. There is no guarantee that prices will go upward. Let's assume you can make more however. My advice would be: No one ever went wrong taking a profit. Make a little less now and avoid alot of headaches. The guarantee of $57K profit (before tax) may be worth alot better than the possibility of maybe 80K later. One thing in your calculations. Usually assignments sell for less than 100% of todays supposed value so theoretically you do have some built in escalation if prices stay exactly as they are now if you keep it. In your example: $469 purchase. 60K profit I assume would be the price you get now assuming the builders price now would be 80-100K more today, not counting for what will happen between now and when you would actually close which in your example you assume(perhaps correctly or not) that prices will increase further.  

Condo George

Captial gains taxable on assignment, realtor fees in effect, benefits are closing costs and secured gains for seller, investor also walks from 2.5% gst rebate applicable on final if not end user. Chk Maple Leaf Sq thread for further info if interested.  

• Feb 3, 2011

Thanks for the replies! JayBee and dogbiskit I was great to read about your experiences in purchasing a condo via assignment! I am quite interested in an assignment that is selling for $257,000. Can anyone tell me approximately how much to budget for the fees associated with the assignment process (realtors and or lawyers) with the closing costs, occupancy fees, with taxes etc.... I know prices vary (ex: I could have to pay “phantom rent” for only 2 months or I could have to pay “rent” for 12 months before the building is actually registered. I am talking about an average of the totality of the other costs. I know that prices can deviate a lot from that average but I would still love an average. I have a second question. Aside from the risks mentioned in the article I mentioned earlier, ( http://www.fic.gov.bc.ca/pdf/alerts/ConsumerAlert200805.pdf ) are there other risks involved with assignments for the assignee and what are they? I want to make sure I do everything I can to minimize the risks and I am having trouble finding in-depth information about assignments (again, I will get a realtor and a lawyer but I want to get some information before)  

March 22, 2024

Real Estate Definition: Assignment Sale

When a buyer enters into a purchase agreement for a pre-constructed or newly built property, they may find themselves in a situation where they no longer wish to proceed with the purchase. In such cases, the buyer can assign their rights and obligations under the agreement to a new buyer – and this is where an assignment sale comes in.

What is an Assignment Sale?

An assignment sale refers to a sales transaction in which the original buyer of a property (“assignor”) transfers their rights and obligations of the Agreement of Purchase and Sale to another buyer (“assignee”) before the original buyer takes possession of the property. The assignee then becomes responsible for completing the deal with the seller. Essentially, an assignment clause allows the buyer to sell the property before they move in. While assignment sales can occur with both homes and condos , they are more common among buyers of pre-construction condos.

Factors to Consider Before Entering an Assignment Sale

While assignment sales can be advantageous, it is crucial for both the original buyer and the new buyer to consider certain factors before entering into such transactions.

Developer’s Consent

Before proceeding with an assignment sale, you must obtain the developer’s consent. Some developers may have strict rules or restrictions, and failure to comply can lead to legal complications.

Assignment Fees

The assignor may charge an assignment fee to the new buyer for transferring their rights and obligations. This fee can vary depending on the market conditions and the specific terms of the Assignor-Assignee Agreement.

Legal Advice

Both parties should seek legal advice before entering into an assignment sale. This ensures that all parties understand their rights, obligations, and potential risks associated with the transaction.

How Does an Assignment Sale Work?

Before proceeding with an assignment sale, the original buyer must obtain the consent of the developer or builder. This step is crucial as some developers may have specific rules or restrictions regarding assignment sales. When the developer consents, the original buyer can look for a new buyer to take over the purchase agreement.

Once there’s a new buyer, both the original buyer and the new buyer (assignee) enter into an agreement known as the Assignor-Assignee Agreement. This agreement outlines the terms and conditions of the assignment sale, including the assignment fee, if any. Then, the developer will review the Assignor-Assignee agreement and may require additional documentation or fees.

Once the developer approves the assignment sale, the closing process begins. At this stage, the new buyer is responsible for completing the purchase, including paying any remaining balance to the developer.

Why Do Assignment Sales Happen?

One primary reason why assignment sales happen is a change of plans. People may decide to leave the area due to personal circumstances such as starting a family, getting married, or looking for job opportunities elsewhere. Additionally, some individuals may face financial challenges that prevent them from completing the purchase.

Alternatively, a common scenario involves investors who never intended to close on the property acquisition. A popular investment strategy is to purchase a property during its early release to take advantage of the emerging market and low pricing and sell it before incurring land transfer taxes, HST, or becoming tied to a mortgage.

Benefits of Assignment Sales

Assignment sales can offer several benefits to both the assignor and the assignee. Some of these benefits include:

Profit Potential

For the original buyer, an assignment sale provides an opportunity to make a profit without completing the purchase. If the market value has increased since the initial purchase agreement, the assignor can sell their rights at a higher price.

Opportunity for Early Ownership

The assignee can benefit from an assignment sale to gain early ownership of a pre-construction property. This can be particularly appealing for individuals looking to invest in real estate or those with specific requirements for a new home.

Flexibility

Assignment sales offer flexibility to both parties involved. The original buyer can exit the purchase agreement without incurring significant penalties, while the new buyer can secure a property without going through the entire pre-construction process.

How a Real Estate Agent Can Help You Navigate this Process

Assignment sales are a complicated process; working with an experienced real estate agent who can help you navigate and understand the ins and outs of this transaction is crucial. These professionals can not only assist you in marketing your assignment, but they can also overcome any limitations imposed by the builder. Moreover, agents have a vast network and can easily connect you with an interested buyer. Although assignment sales may seem daunting, having a skilled lawyer and an experienced realtor is a smart financial move!

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How HST Applies to Selling Assignments As of May 7th 2022

By Condo Culture

There have been plenty of conversations amongst the real estate community and assignment sellers regarding the Federal government announcing that they will be making HST payable on profits made by either end-user buyers or investors, effective May 7th, 2022.

Here’s What Has Changed

This additional charge has always been in place with HST on profits being the responsibility of the Seller. There were specific workarounds in place which won’t apply anymore. This regulation already applied to investors, so nothing changes with this particular type of purchaser. The government essentially wants to tighten up on end-users purchasing a pre-construction unit and subsequently assigning. So moving forward, regardless if the intention was to move into your unit as an end-user, any profit from any assignment sale will now be subject to HST .

Savings - Have a Professional Team On Your Side

Even if you’re an end-user buyer and need to sell your unit for whatever reason as an assignment sale, you can deduct certain expenses from your profit to reduce the amount of HST you pay. The commission of your REALTOR®, lawyer and accountant fees, other assignment-related costs, upgrades to the property, and additional ones are potentially eligible. It’s certainly possible to save between 15% to 20% on what you need to pay for HST based on leveraging applicable deductions.

We highly recommend having an experienced REALTOR®, accountant, and lawyer representing you who all have experience with assignment transactions. Your team can help you navigate through the process from start to finish and beyond, so there are no surprises along the way and to ensure you feel comfortable knowing that you didn’t pay more in HST than you need to in order to maximize your ROI.

Condo Culture has a vast amount of expertise handling all types of assignment transactions and we are all over new regulations as they morph and change over time, so be sure to reach out for any of your assignment selling or buying needs. Assignments can offer unique value given their off-market nature with less buyer competition. They are a great option to review as you explore all possible Condo purchase possibilities.

A Simple Assignment Selling Example

When selling an assignment unit, you pay HST on the deposits made on the purchase, plus the 13% on the home’s increase in value once the deal is complete.

Let’s look at an example - if you originally bought a condo for $450K and ultimately sold it as an assignment listing for $650K, then you will need to pay an additional 13% HST on the increase of $200K minus any deductions as outlined above.

Current Exclusive Assignment Opportunities

We have a bunch of fantastic assignment buying options available right now, including these two beauties.

Unit 1012 at Station Park in Tower 1

Highlights:

🛌 2 bedrooms 🛀 2 bathrooms 🚘 1 parking spot 🔐 1 locker ⏹ 810 sq.ft. + a 45 sq.ft balcony ⬆ $18.5K in upgrades on the kitchen and bathroom. Corner unit facing King Street with stunning city views. Expected occupancy: Fall 2022 List price: $699,900

Analysis: This spectacular two-bedroom condo is in a highly sought-after corner unit looking out onto King Street. It’s well priced at $864/sq.ft. and that includes almost $20K in gorgeous upgrades along with a premium lighting package addition, plus a parking spot, as well.

Unit 512 at Station Park in Tower 2

🛌 1 bedroom 🛀 1 bathroom ⏹ 625 sq.ft. + a 60 sq.ft balcony ⬆Entertainment package upgrade included. Corner unit facing both King and Wellington Street with nice 5th-floor views. Expected occupancy: Early 2023 List price: $510,000

Analysis: This wonderful corner unit has a solid price per square foot at $816 including an entertainment package that has been added. It has a generous amount of space for a 1 bedroom unit and a good-sized balcony to lounge, dine, and entertain

We have helped hundreds of clients navigate the unique assignment selling and buying process, and would love to leverage our deep experience to help you succeed with your future transactions. In addition to our Assignment expertise, we are also experts in Condo Resale and Pre-Construction transactions - we are a full spectrum condo brokerage that’s at your service!

To learn more about our assignment selling and buying approach and unique expertise, be sure to read this informative article and connect with us if you have any questions or got any type of condo business to take care of.

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Everything you need to know about Preconstruction Assignment Sales

Have you sold pre-construction homes before closing on assignments?

Have you wondered about what are the tax implications on selling pre-construction homes before closing?

We often advise our clients to not to sell their pre-construction homes before closing if possible.  It can trigger a series of tax implications – HST and income tax implications. 

Before the announcement of Budget 2022, CRA had adopted the policies that HST would be applicable on not just the assignment fees, but also the deposit. 

This could be a huge tax cost that most investors weren’t aware of.

Now, let’s use an example to explain .

Say you agree to purchase a pre-construction home for $700,000.  You sign the agreement of purchase and sale and pay a deposit of $100,000 to the builder. 

The new home is expected to be completed a few years later.

You decided to sell the property on assignment before it’s ready for closing for an additional $50,000.

Scenario 1:  When you signed the agreement of purchase and sale, you intended to move into the property and use it as your primary residence.  

Life circumstances change.  You now decided to sell the property before closing.  You sold it on assignment before May 6, 2022 .

HST: As your intention was to move into the property as your primary residence, you had no HST liability obligation.

Again, intention is subjective.  If you’re questioned in court, you would have to provide evidence to prove your own intention. 

Most clients thought that the CRA would have to prove that they were wrong.  The truth however is that the taxpayers are the one who have the responsibility to prove to CRA their own filing position. 

Make sure your have documentation proving your initial intention.   

Income Tax: Assuming you have strong documentation proving that you did intend to purchase this pre-construction home as your primary residence, the $50,000 assignment fees could be reported as capital gain.

Scenario 2:  When you signed the agreement of purchase and sale, you intended to move into the property and use it as your primary residence.  

Life circumstances change.  You now decided to sell the property before closing.  You sold it on assignment after May 6, 2022 .

Budget 2022 changed the rule.  For all assignment sales happened after May 6, 2022, regardless of your intention, you’re required to pay HST on the assignment sales.

HST implication:

This means that the $50,000 collected is no longer all yours.  This $50,000 collected, if you don’t charge HST on top, is inclusive of HST.  

You must remit the HST to CRA on sale on assignment.  In this case, it would have been $5.8K. 

Presumably, you would also be able to claim Input Tax Credit, which is the HST you paid on services that you used to allow you to sell the property.  This includes the HST you paid on your legal cost and HST you paid on brokerage fees. 

The net amount can be remitted to CRA.

Income Tax Implication:

Budget 2022 also made some rule changes when it comes down to sale of property.  The sale of a property within one year of ownership is considered on income account, meaning 100% of the profit you make is taxable, with some exceptions allowed, effective Jan 1, 2023.

When you apply this new rule to this scenario, it is unknown as to whether an assignment sale is considered a flipped property.  It’s difficult to say whether this rule is applicable to assignment sale at this point.

Regardless, you still would need to keep proper and relevant documentation supporting your intention that you were trying to move into the property as your primary residence.  With proper documentation, you could still report the net income from assignment sale on capital account, meaning only 50% of the profit you make is taxable.

In our example, assuming client didn’t incur other cost of selling, the client would be reporting $44K of capital gain, 50% of which would be taxable.

Scenario 3:  When you signed the agreement of purchase and sale, you intended to rent out your property.  

Interest rate changed.  You now decided to sell the property before closing.  You sold it on assignment before May 6, 2022 .

Your intent was never to move into the property as your primary residence or have any of your family members moving in, as a result HST is applicable on assignment sale.

Assignment fees are subject to HST. $50,000 assignment fees you collected are subjected to HST.

CRA also adopted the position that the deposits $100K are also subject to HST as well.  Ouch!

You thought you made $50,000 – but after considering the HST on assignment fees $5.8K and HST on deposits $11.5K, you really only net $33K.

This calculation hasn’t considered the brokerage fees as well as the lawyer fees yet.  Yikes!

Income Tax implication:

The net amount profit of $33K (assuming there’s no brokerage fees or lawyer fees, if you have, the net profit is lower) would likely have to be reported as income, 100% of it is taxable. 

If you own the property in your personal name, the entire amount is added to your job income or whatever income you have in your personal name.  You’re taxed at the respective marginal tax rates, which can be as high as 53.5% in Ontario.

Triple Yikes!

If you own the property in the corporation, the profit is taxed as regular business income, most likely at 12.2% for qualified small businesses. 

Scenario 4:  When you signed the agreement of purchase and sale, you intended to rent out your property.  

Interest rate changed.  You now decided to sell the property before closing.  You sold it on assignment AFTER May 12, 2022 .

The Government also recognized that charging HST on deposits were not right.  Budget 2022 specified that HST would no longer be charged on deposits .

Assignment fees are subject to HST but deposits are not subject to HST anymore to avoid double taxation.

Assignment fees are reported as income 100% taxable.

So continuing with the same example, HST is applicable on the $50,000 assignment fees, meaning that you would incur HST liability of $5.8K as calculated above. 

Again, you could offset the HST liability with the HST you pay on realtor commission as well as lawyer fees on closing. 

The net amount would have to be paid to CRA.

The net profit of $44K (assuming there’s no brokerage fees or lawyer fees, if you have, the net profit is lower) would likely have to be reported as income, 100% of it is taxable. 

Similar to Scenario 3, if you own the property in your personal name, the entire amount is added to your job income or whatever income you have in your personal name.  You’re taxed at the respective marginal tax rates, which can be as high as 53.5% in Ontario.

Now that we’ve gone through the assignment sales tax implication in details – Are you still planning to sell your properties on assignment?

Let us know below.

Lastly, our team has been working tirelessly to prepare for the upcoming Wealth Hacker Conference on preparing everyone for the upcoming recession.  We have experts such as Dalia sharing her insights on how to protect your portfolio and grow from this recession.  If you are lost, join us at the upcoming Wealth Hacker Conference.  

Visit WealthHacker.ca now to get your tickets. 

Until next time, happy Canadian Real Estate Investing.

Cherry Chan, CPA, CA

Your Real Estate Accountant

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