Assignments of Contract

What is an Assignment of Contract?

Simple Short Answer: A contract assignment occurs when a buyer transfers the contract to buy property to someone else before the completion date. The buyer can transfer the contract for any price, even for a higher price than they paid for the property. The buyer does not have to pay the seller any additional money if they make money from selling the contract.

Long Answer:  An assignment of contract 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 completes on the property. The assignee is the one who ultimately completes the deal with the vendor. In other words, an assignment clause allows the buyer of a home to sell the place before they take possession of it.  Assignments are most common in pre-built homes and condos than on re-sale properties, but they are possible on any type of trade.

Why would you assign your property?


Typically there would be a situation where a buyer’s financial or personal situation changes before closing. Assigning allows them to pass along the contract to another buyer, without backing out of the deal with the vendor (Developer in most cases).  For instance, someone could buy a condo that is still under construction and might not be ready for a couple of years. The buyer’s work or family situation could change during that time, (babies!) causing them to change their mind about living in the condo they purchased. So they decide to assign their unit to a new buyer. Get their money back (plus any profits) and move on.
However, it can be used as purely a speculative or investment too.  Purchasing a pre-sale condo at a certain price point, if the market value increase in 1-2 years after the purchase, the assignor can assign their unit for profit after expense. 

Another example may be where a buyer runs into financial difficulties to close on an existing house and wants to find another buyer rather than risk the financial penalties that might come with having to try to back out of the deal.
PURCHASING AN ASSIGNMENT COND

How do I sell an assignment of contract?


The following explanation here as if you are assigning a pre-sale purchase. NOT assigning a re-sale purchase, which is ill get to after. 

Much like a typical re-sale property. Find an agent that is experienced in pre-sales and assignments (LIKE ME!). They are a bit trickier than a typical re-sale purchase and sale, there are loads of terms and conditions that are applicable on an assignment sale that are not typical on a typical re-sale purchase and sale. 

First things first, refer back to the original contract of purchase and sale that you signed with the vendor, does it allow assignments? if so, what are the terms  conditions in assigning that home.  Some restrictions/terms placed by developers include:

  • The complex has to be sold out before developer will allow assignments
  • The Timeline when you can sell it.  Some developers will only allow a certain window, after a certain date to a certain date. Usually this window starts after the building permit is issued, and expires 3 months before expected completion. 
  • Who you can assign it too. Recently some developers will not allow Foreign buyers to assign local buyers (tax evasion etc)
  • Fees:  Developers can charge assignment fees anywhere from 1%-5% of the purchase price,  what purchase price do you ask? thats a very good question.  In most cases the developers fee will be based on the Original Purchase price, but in some cases the fee is paid on what you sell it for.  and no, you can't sell it for a $1, developer a) will see right through it and b) will not allow the assignment. Some developer assignment fees can also be 25% to 50% of the Lift (profit). (there are other cost to be considered, this is purely developer assignment fees) 
  • Restrict public advertising: Some developers will not allow assignments on MLS, or even use the building name or marketing material. This is where its important to use an experienced agent that has a good network. 
Assigning an already built home is a whole different situation. After the term "Shadow Flipping" was coined by a previous Government, it put a black eye on assignments (and in some cases, rightfully so. Unscrupulous agents taking advantage of a rising market at the expense of some sellers)  Assigning a home you bought on a re-sale market is a bit more complicated. Prior to 2015, you didn't need permission from the original seller to assign the property, you could just re-list the property on MLS and sell it, sometimes the seller wouldn't know who bought it until completion. 

Now not only do you have to get permission from the seller, but the original seller also gets 100% of the profits. So you purchase a property from the Jones, a little while something changes to your life and you need to sell it, you call up your agent and they find a buyer for that property for $50,000 profit. The Jones have to a) approve the assignment and b) have the right to lift (profit).  Because of the new rule change. Assigning a re-sale home is typically done only for emergency situations where the original buyers financial situation drastically changed. 

So why buy an assignment?


If you are looking to purchase a pre-sale property in Vancouver, an assignment of contract might actually be a better option than buying directly from the developer.  Why you ask? Some benefits:

  • You want new, but don't want to wait 3-4 Years till completion? Assignments are typically sold a bit closer to completion, so you get the benefits of new, but don't have to wait that long.  
  • Pricing: Once a developers gets past the point of their sales goals, pricing and incentives disappear and pricing actually goes up. As since they got their bank financing, there is ZERO motivation on their part to sell the homes at a discount and can wait till completion to sell the home for market value then. A wannabe assignor may not have that luxury, so you can get an assignment of contract purchase on a similar project in the area for slightly below what a competing development is selling for. 
  • PTT- For purchase under $750,000, a purchase by an end users can avoid paying the PTT, and as of right now, that is based on the contract price, not the prices you pay for the assignment. For example you purchase an assignment for $850,000, the value of the contract is actually is $725,000 you will be able to avoid that PTT cost. (rules may change)
  • GST - Much like PTT, GST will be based on the original purchase price, not the final assignment price. (rules may change)
  • Deposit - Since the assignor likely paid a lesser price then what they are assigning it for, the total deposit paid on assignment price could overall be less. for example assignor pays $500,000 for a condo, they would have paid 20% down ($100,000) when they assign it to the assignee for $650,000, the assignee would need to match the original deposit of $100,000, not 20% on $650,000 which would be 15%.
This page is just a summary of assignment of contract in Vancouver. There are a few other factors that need to be considered when buying an assignment or selling an assignment not mentioned here. 

 If you are thinking about assigning a property, or purchasing an assignment, book a buyers consultation here or sellers consultation here, or give me a call at 604-813-4686 and i'll be happy to sit down over a coffee (or beer!) and go over the smaller details 

Get In Touch

Anthony Riglietti

Pacesetter Marketing Ltd.

205-998 Harbourside Drive
 
North Vancouver,  BC
 
V7P 3T2 

Phone: 604-813-4686

anthony@findyourproperty.ca