Assignments vs Resale When Interest Rates Rise

Published on 29 August 2022, 07:22:56 AM

Holding a preconstruction home investment may feel hairy when interest rates start climbing, so let’s look at the merits of assignments vs resale. 

In other words, are you better off taking possession of that preconstruction home you bought a few years back and selling it, or trying to make an assignment sale beforehand? 

Why It Matters What Real Estate Markets Do

Real estate pundits in July 2022 projected home prices in the Greater Toronto Area would rise by about 11% by December, and 3% again in 2023. Sales are slowing. That’s expected to continue. But with homes being long-haul investments (10 to 25 years for most amortizations), most purchases make money over time. 

Where that leaves investors weighing the profits to be made from an assignment sale vs resale may be squarely on the fence. 

Here’s why.

What can possibly go wrong with real estate closings. 

The Assignment Sale vs Resale Balance Sheet

By now, you’ve got some sunk costs in your preconstruction home, like your initial deposit of 20% or more.

Selling could return your initial preconstruction deposit, plus any profit you may make. That’s immediate cash that can be invested in other potentially lucrative vehicles, like stocks or bonds. You could even hold it for the next big real estate opportunity that comes your way.

If you hold until 2023, and the pundits are correct, you might make a bit more. That’s fine, as long as markets don’t dip after you close the deal by taking occupancy. A decline in 2023 could leave you holding your investment a lot longer, until it’s profitable to sell it. 

Your real estate lawyer’s role in an assignment sale vs resale. 

Is Assignment the Same as Selling?

Not quite. 

True, you pass all your rights and obligations to the buyer with the accepted assignment of agreement of purchase and sale. 

You’re no longer bound to the builder’s terms and conditions, including whether they deliver the finished home on time and to your satisfaction. Depending on your assignment agreement, you’re usually excluded from paying land transfer taxes and HST. The “assignee” who buys your home pays those, the balance of the purchase price, and any cost overruns or extras the builder charges. 

But preconstruction contracts may not allow an assignment sale vs resale, or let you advertise on the MLS or online. If that’s the case, hoping for a quick assignment sale vs resale could breach your agreement of purchase and sale. 

You could lose your deposit altogether, answering the question of is an assignment sale vs resale cheaper!

Making assignment of agreement of purchase and sale contracts in Ontario.

Is It Good to Buy Assignment Sales?

It can be for the buyer, but you may take a loss as seller. 

Builders frequently charge original purchasers fees that may make you question if an assignment sale vs resale is cheaper. Opting for an assignment sale vs resale can add a modest or whopping assignment fee to your already sunk costs.

Be prepared to pass this fee onto the buyer, unless your negotiating skills (or your realtor’s) fail you. What you won’t be able to recoup is taxes on any profits, realtors’ commissions or FSBO (for sale by owner) fees, and legal costs. 

Incidentally, because the transaction is more complicated, legal fees for an assignment sale vs resale can be higher. And since your home is still under construction, the resale market is a complete unknown, meaning you could lose money if it turns out to be worth a lot more in future.

Assignment sales vs resales tend to be less profitable. You take your chances.

Do buyers have a right to cancel? 

The End Product is Unknown

Here’s the kicker: buying a preconstruction home is not a sure thing. 

Registration in the Tarion new home warranty program is mandatory for legitimate new home builders. Confirm a builder is licensed in Ontario. But you never really know what you’re getting until you take delivery. 

Warranty protections for new build homes. 

FAQs on Assignment Sales

Is an assignment a sale?

Yes. You sign a sales contract to buy the first purchaser’s interest in your new home. Rules for borrowed down payments. 

Is there a fee for an assignment sale vs resale? Who pays assignment fees if they apply?

Most builders charge a fee, often from $2,500 to $5,000, to consent to the assignment and draft the assignment agreement. Your realtor can negotiate who pays the fee when they draft the assignment of agreement of purchase and sale in Ontario.

Do assignments transfer ownership?

You become the owner when you take possession of the property. Until then, you are the assignee purchaser, with all the rights and obligations of the original buyer. Just like any prospective new owner, you are responsible for dealing with construction delays, building deficiencies, price adjustments, or move-in problems. 

Do you pay HST on an assignment sale in Ontario?

GST/HST is due for assignment sales of new or substantially renovated home or condo, and is charged when the seller is also the home builder. A word to the wise: any seller may be deemed a builder for tax purposes. See Canada Revenue Agency advice on GST/HST for assignment sales vs resales. 

Do you pay capital gains on an assignment sale?

The original purchaser’s profits may be taxed as a capital gain if it was a principal residence, or business income for investments. Consult a tax specialist before you draft an assignment of agreement of purchase and sale.

Who pays land transfer taxes (LTT)?

If your home was an assignment sale vs resale, the assignee (second purchaser) pays the LTT.

Why You Need a Real Estate Lawyer 

Buying an assignment property, but not sure how to proceed? Axess Law handles the closing details when you make an assignment of purchase and sale agreement. See us before or after you sign.

Axess Law’s licensed real estate lawyers review the agreement to ensure the terms and conditions are to your advantage. We go through the fine print for clauses you may not realize bind you legally, and suggest amendments if needed. Your Tarion new home warranty includes deposit protection. Ask us about that. Questions to ask our real estate lawyers.

Axess Law searches titles to properties for financial claims or construction liens, and registers them in your name. Including a common law or legally married spouse on title to a property can involve extra steps. Your lawyer can add names to titles before or after your real estate transaction is completed.

Adding spouses to house titles in Ontario. 

Looking for mortgage financing, but can’t find the rate you want quickly? Axess Law negotiates with the seller’s lawyer to push back your completion date by amending the agreement of purchase and sale. We discharge existing mortgages, and prepare legal documents to make a new mortgage final.

Add Real Property to Your Will

Changes to your real estate holdings can make your personal Will outdated. Making a new Will is quick and inexpensive when you use Axess Law. Add updates to your Will while you complete your real estate transaction to ensure that you don’t let this important detail slip. Axess Law gives you a discount when you share an appointment to update your Will with a legally married or common law spouse. Read about the right to survivorship for jointly owned real estate.

Make Real Estate Closings From Home or Office

Axess Law brings real estate closings to your home or office via secure, confidential video conferencing software. Your virtual real estate lawyer makes buying an assignment property simpler by connecting with you on any home computer, laptop, tablet, or compatible mobile device. Your privacy is protected while we witness your signature online. Ask us about using a remote real estate lawyer today.

Virtual real estate closings for new users.

Affordable Real Estate Lawyers, Anywhere You Are 

Access lawyers for less in Greater Toronto Area, Ottawa, or anywhere in Ontario  when you buy, sell, or transfer property. Axess Law’s flat fee real estate lawyers are affordable, and our rates are all inclusive (excluding taxes, disbursements, and third-party charges). Axess Law offers you only the legal services you absolutely need. Your final invoice includes no surprises or hidden charges. Your itemized statement of adjustments is explained when we deliver it, and we answer any questions you have about it. 

Hire a real estate lawyer anywhere in Ontario.  

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Get free quotes by calling our 647-479-0118  lawyer line, or toll free to 1-877-402-4207. You can use our easy online booking form to make your own appointments online. For personal assistance with scheduling appointments, drop by any Axess Law Greater Toronto Area or Ottawa law office.

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