Are you thinking about an assignment sale in Ontario? You’ll need the right information before you make a move!
In this article, we’ll explore what an assignment sale is, why people perform assignment sales and what are the most common uses for them, the new taxes on assignment sales in Ontario for 2022, and some future predictions.
What is an assignment sale?
An assignment sale occurs when a person sells a property before closing. That is, he or she sells the contract he or she has with the builder to a new buyer. When a seller assigns a property, he or she isn’t selling the property because he or she doesn’t actually own it yet, he or she is selling his or her promise to buy it. The person who buys an assignment is basically replacing the original buyer.
Between the moment in which the buyer buys a pre-construction property and when it’s completed, the buyer doesn’t own a house. What they’ve is a contract agreeing to the sale. If the buyer doesn’t want to keep the property before it’s ready, he or she can assign it to a new buyer. Thus, an assignment is a contract that allows the buyer to take the place of the seller (the original buyer).
Assignments are common with pre-construction condo apartments. All you need to make sure of is if the assignment is allowed in the agreement between the builder and the original buyer.
Why do people perform assignment sales, and what are the most common uses for them?
With pre-construction sales, the takeover process is quite long. There’s a significant delay from the signature of the original contract to the moment when the property is ready. It’s normal for the buyer’s circumstances to change during that time because of a new job out of town, job loss, new wife or husband, new kids, an emergency, etcetera. This way, what worked out for a buyer years ago doesn’t always work when the construction is advanced or near to closing.
Another reason people want to do an assignment sale is financial. It’s possible that the original buyer doesn’t have the funds to keep paying, and the better option in that case is to assign the contract.
Finally, assignment sales are common among investors who buy unbuilt properties without thinking of keeping them. In these cases, investors are betting on quick price appreciation, and they want to make a profit as soon as possible. In a fast-paced real estate market like the one we have in Ontario, assignment sales are ideal for speculators. Since home prices are rising, the value of the pre-construction home can escalate while waiting.
Most pre-construction agreements from Ontario builders don’t allow you to market an assignment. The builder can transfer you the right to assign the contract, but they don’t allow you to advertise it. This makes selling an assignment a very difficult task because if nobody knows it’s listed for sale, how can somebody buy it?
If you want to disobey this rule, you’ve got to be careful: if you’re marketing an assignment that can’t be marketed, it can be considered a breach of the contract, and the builder can cancel the agreement and not refund your deposit.
New Taxes on Assignment Sales in 2022
The 2022 budget for the government of Canada proposes a sales tax to assignments for new constructions. Applying a tax on assignments will make assignment sales unattractive because it can significantly change investor interest in pre-construction properties. The assignment sale tax is a new tax, different from what is paid on the profit of an assignment sale, taxed as income.
Future Predictions for Assignment Sales
The number of assignment sales has increased with the growth of pre-construction condominiums. As such, there’s an urgent need to improve the assignment sales process in Ontario and elsewhere. One possibility for the future involves creating a registry that tracks all assignment sales.
Regarding the new tax on assignment sales, it will reduce the profits and popularity of this kind of deal. This is clearly a move by politicians to remove some investor purchasers of real estate from the market.
Ultimately, the current situation could be an opportunity to enhance the assignment sales process and bring transparency to the pre-construction condominium market, adding value to all the people involved.