Intro to Assignment Sales
What Is an Assignment Sale?
An assignment sale occurs when the original buyer (assignor) sells their purchase agreement to a new buyer (assignee) before the property is officially transferred into their name.
This type of transaction is most commonly associated with pre-construction properties, allowing investors or homebuyers to sell their contract rather than the physical property.
Who Are the Key Players in an Assignment Sale?
1️⃣ The Builder – The developer constructing the new property and the original seller of the unit.
2️⃣ The Assignor (Seller) – The original buyer who purchased the pre-construction property from the builder and is now selling their rights to the contract.
3️⃣ The Assignee (New Buyer) – The buyer taking over the contract and agreeing to all original terms and obligations between the builder and the assignor.
Are There Extra Costs Associated with an Assignment Sale?
Yes, there may be additional fees for both the assignor and assignee. These costs depend on the builder’s policies, legal requirements, and tax implications.
Some builders charge an assignment fee, which is outlined in the original purchase agreement.
Many builders allow one free assignment per unit, but this varies by developer.
Additional costs may include legal fees, accounting fees, realtor commissions, and potential taxes.
Example of a Simple Assignment Sale Transaction
To understand how an assignment sale works, here’s a step-by-step example:
📌 Original Purchase Price: $500,000
📌 Assignor’s Deposit Paid to Builder (10% Down): $50,000
📌 Amount Owed to Builder: $450,000
📌 New Assignment Sale Price: $650,000
How Is the $650,000 Purchase Price Dispersed?
✅ Assignee Pays the Assignor’s Deposit Back ($50,000 upfront)
✅ Assignee Pays the Remaining Balance on Closing ($600,000)
$450,000 goes to the builder.
$150,000 goes to the assignor as profit (before fees and taxes).
💰 The assignor earns $150,000 in appreciation, but this is before deductions such as:
✔ Legal fees
✔ Accounting fees
✔ Realtor commissions
✔ Taxes – Capital gains, potential HST, and builder’s assignment fees
What Expenses Can the Assignee Expect?
The assignee (new buyer) should be aware of the following potential costs:
✔ Legal fees
✔ Realtor fees (typically paid by the assignor in Ontario)
✔ Builder fees and levies (found in the original purchase agreement)
✔ Accounting fees
✔ Land Transfer Tax
✔ Potential HST obligations
Understanding Tax Implications in Assignment Sales
💡 Both assignors and assignees have potential tax responsibilities. Always consult an accountant before proceeding.
Tax Considerations for the Assignor (Seller):
Capital gains tax on profits from the assignment sale.
Potential HST obligations depending on the nature of the sale.
Tax Considerations for the Assignee (Buyer):
Land Transfer Tax payable on closing.
Possible HST charges depending on the property’s usage.
📌 Tip: Always speak with a real estate lawyer and accountant before entering into an assignment sale agreement to understand tax implications fully.
Other Key Considerations for Assignment Sales
✔ Builder’s Approval Is Required – The assignor must get written consent from the builder before marketing the sale.
✔ MLS Restrictions – Some builders restrict MLS listings for assignment sales until a certain percentage of the project has been sold.
✔ More Complex Than a Standard Resale – Assignment sales involve extra steps, requiring expert guidance from real estate professionals.
✔ Legal Review Is Essential – Both the assignor and assignee should make the agreement conditional on their lawyer’s review and approval.
Is an Assignment Sale Right for You?
An assignment sale can be a great investment opportunity for both buyers and sellers, but the process must be handled correctly to avoid unexpected costs and legal issues.
📞 Thinking about buying or selling an assignment property? Contact us today for expert guidance on navigating the assignment sale process!