Assignment sales have become increasingly popular in copyright's real estate market, particularly in areas with significant pre-construction development. An assignment sale occurs when a buyer of a pre-construction property sells their rights to the property before it is completed and transferred into their name. This allows the original buyer, known as the "assignor," to pass on their purchase agreement to a new buyer, the "assignee," often before the property is even built.
How Assignment Sales Work
In a typical assignment sale, the assignor initially purchases a property directly from the developer, often paying a deposit and entering into a contract for the property. Due to factors such as rising market prices or personal circumstances, the assignor may decide to sell their rights to the property before the developer finishes construction or hands over possession.
When assigning the contract, the assignor sells the right to take ownership of the property upon completion. The assignee, or the new buyer, takes over the original contract's terms, including price, closing dates, and any other conditions. The assignee is generally required to pay the assignor a premium or additional amount above the original price if the property has appreciated in value.
Reasons for Assignment Sales
Several reasons drive assignors to sell their contracts:
- Market Appreciation: If the property value has increased significantly since the original purchase, assignors can profit by selling their contract at a higher price.
- Personal Circumstances: Changes in financial situations, employment, or family needs may make the original buyer unable or unwilling to close on the property.
- Speculation: Some buyers invest in pre-construction properties intending to assign them later for a profit without ever planning to occupy the property.
Benefits and Risks for Assignors
Benefits:
- Profit Potential: Assignors can benefit from rising property values by selling their rights at a higher price than they paid.
- Flexibility: Assignment sales allow assignors to exit a deal without having to wait for the property’s completion.
Risks:
- Market Fluctuations: If the property value decreases, the assignor may struggle to find a buyer willing to pay more than the original purchase price.
- Developer Restrictions: Not all developers permit assignment sales, and some may impose fees or conditions.
Benefits and Risks for Assignees
Benefits:
- Access to Pre-Construction Pricing: Assignees may acquire a property at a price that was set years before, which can still be below the current market rate.
- Flexible Buying Options: Assignment sales may allow buyers to get into desirable projects that are sold out directly from the developer.
Risks:
- Higher Upfront Costs: Assignees often pay more than the original contract price, meaning higher upfront costs.
- Uncertainty: The property is typically not yet complete, which introduces construction delays, developer changes, or other unknowns.
Taxes and Legal Considerations
Assignment sales have tax implications that both assignors and assignees should be aware of. In most cases, assignors are required to pay capital gains tax on the profit from the sale, as well as HST (Harmonized Sales Tax) on the assignment fee. Assignees may also be responsible for paying taxes on the purchase, depending on the province and specific transaction details.
Conclusion
Assignment sales offer flexibility and potential profit for both sellers and buyers, but they come with inherent risks and legal complexities. It is essential for all parties involved to consult with real estate professionals and legal experts to navigate the process smoothly and ensure compliance with applicable laws. As copyright's real estate market continues to grow, assignment sales will likely remain a prevalent option for buyers and investors alike.