What are the benefits of assignment sales?
Many may have heard of the term assignment sales but are unfamiliar with how it works. Below we’ll take a closer look at exactly what assignment sales are, and what’s involved in buying or selling an assignment.
The common perception of a real estate sale is between two parties transferring the ownership of a physical property for a predetermined dollar amount. However, there are instances where transactional activities occur during the preconstruction phase of a property. Such activities are known as assignment sales, and this is possible when the right or the interest to buy a property is sold to another individual prior to completion of the construction. Assignment sales are most often seen in the condominium market as it is common for the builder to sell out their inventory early on in the development, but the units continue to be high in demand. This allows new buyers to be given opportunities to still own an interest in the units if certain individuals decide to sell their assignment.
When an offer is made on a pre-construction condo unit, an Agreement of Purchase & Sale would be signed by the original purchaser. The agreement would include an Assignment Agreement Clause stipulating the rights to assign the contract to another under certain conditions. Essentially, this permits the original purchaser, or the Assignor, to sell their obligation to purchase the property to the another individual, or the Assignee. The Assignee would be the one to complete and close the final sale with the builder.
As participants of an assignment transaction, there are several key factors to consider. In the next section, you’ll see the benefits to buying or selling an assignment.
Buying an Assignment
In a seller’s market, buyers may often find themselves in a bidding war and end up paying for a significantly higher price. Instead of pursuing this route, buying an assignment can be an excellent alternative as relatively speaking, there is less competition for these properties, which can lower the cost for the buyer.
Assignment of a property has been around in real estate industry for quite some time yet it is not widely known. This is often due to the marketing restrictions that are usually in place to prevent assignments from being advertised on popular platforms such as the Multiple Listing Services (MLS®). With that said, having an agent knowledgeable in this area is important as they can open doors to homes that may never otherwise be known. This gives buyers a larger pool of saleable homes with less competition to choose from.
Buying an assignment can also lead to possessing the property quicker than purchasing a pre-sale unit. When an assignment is available for sale, construction is often already well underway, meaning the time to occupancy is shortened. Depending on what stage the construction is in, there is a possibility for the Assignee to still be able to personalize the unit by choosing their own finishes, appliances, and other upgrades to the unit.
The Assignee will be responsible for settling the deposit as well as any profit or loss to the Assignor. Moreover, the Assignee will be liable for the full purchase amount at completion along with the terms and conditions written in the original contract.
Selling an Assignment
With pre-construction sales, there is usually a long period before the unit is ready for occupancy. By going through the process of an assignment sale, the Assignor is able to get out of their contract without having to endure the mortgage process and incur the closing costs in order to resell the property.
From an investor’s perspective, the benefit is that not only can the Assignor receive their original deposit back, they can negotiate with the Assignee for a higher price. With today’s increasing demand for condos, many investors lock in their profits from an assignment sale and use it towards their next investment opportunity, continuing a series of profitable transactions. Assigning the contract can also save investors the interim occupancy fees for a unit they never plan to live in.
Aside from investors, assigning the contract is also a great option for individuals who originally plan on settling in the new unit but encounter situations where lifestyle changes affect their ability to fulfill the obligations of the purchase. As an example, a young couple may be expecting a newborn, making the unfinished condo unit too small for their growing family. The option to sell the unit before completion can allow them to acquire their proceeds back more swiftly than if they waited for the condo to be built in order to be resold on the market. Thus, assigning the contract to another interested party would release the Assignor from all purchase obligations. As long as the original purchase contract allows for assignments and the new purchaser is able to satisfy both the details of the contract and financial qualifications, most builders would approve.
However, the seller of the assignment will need to be aware of building assignment fees that are well documented in the purchase contract. In addition, there may be restrictions that prohibit assignments to be marketed on popular platforms. Doing so would be a breach of contract resulting in the loss of the deposit.
How We Can Help
Although assignment sales may be a great option for investors or homeowners, they can be complex as the risks and requirements are different as opposed to the usual purchase and sale of a property. It is vital to work with an experienced REALTOR® who understands the intricacies of assignment sales so that they can guide you seamlessly through the process.