Is Buying a Home on Assignment a Good Idea?
Buying on assignment has become an increasingly popular method of buying a home or condo. We answer the most commonly asked questions about buying on assignment and conclude whether or not buying an assignment home or condo is worth it.
What is buying on assignment?
Buying a home on assignment is a process where the buyer purchases a home that is already under contract with another buyer. The buyer then takes over the existing contract, assuming all of the obligations and responsibilities of the original buyer. This process is often used to purchase homes that are in foreclosure or are subject to a short sale. It is also a common way to purchase pre-construction homes or condos. It is important to note that the process of buying a home on assignment is complex and may involve legal and financial considerations. It is important to consult with a qualified real estate professional before entering into this type of transaction.
How does buying on assignment work?
In an assignment purchase, the buyer (the assignor) enters into a purchase agreement with the seller and pays a deposit. The assignor then assigns the purchase agreement to another buyer (the assignee). The assignee then takes over the purchase agreement, pays the remaining balance, and closes on the purchase. Think of buying on assignment as purchasing the option to buy a home closing on a future date at a pre-determined price.
Is buying on assignment cheaper?
Yes, buying a home on assignment is often cheaper than buying resale. As assignment buyers are purchasing an unbuilt or partially finished home, the seller (assignor) typically offers a discount or incentive to compensate buyers for having to wait for the home to be built. If you aren’t in a time crunch to move in, buying on assignment can be a great way to purchase a great home at below market value.
Is Buying a Home on Assignment a Good Investment?
Buying a home on assignment offers a number of advantages including reduced wait times to move into a brand new home, lower purchase price vs resale and less competition from other buyers during sellers markets.
The waiting period for an assignment home is shorter than pre-construction.
When buying a home on assignment, typically the builder has already begun construction. As such, buyers will not have to wait years for builders to obtain permits and sell a minimum number of units before breaking ground. This gives assignment buyers the benefit of getting a brand new home without having to wait 2-5 years.
Assignment homes are less expensive than resale.
Properties purchased on assignment cost less than their equivalent on the resale market. This is because the prices of homes on the assignment market are discounted to compensate potential buyers for buying an unfinished product and having to wait for completion.
There is less competition for assignment sales during sellers markets.
When the demand for homes is greater than the available supply in a particular market, this drives intense competition among buyers which triggers bidding wars and rapid increases in home prices. Buyers seeking to avoid engaging in bidding wars when the resale market is highly competitive will find that there is less competition from other buyers in the assignment market. In such environments, it can be reassuring to know that its possible to secure a desirable home without having to outbid other offers.
Your investment will likely increase in value when construction is complete.
Assuming similar market conditions, pre-construction homes and condos will increase in value upon registration. As the assignment buyer takes on the risk of buying a unit on plans that doesn’t physically exist yet, they typically see an equity gain after successful completion of the project because this speculation risk is no longer present.
What are the cons of buying on assignment?
Assignment buyers get less selection of features and finishes.
Many of the options and upgrades offered by the builder will have already been chosen by the original buyer. As such, assignment buyers will get limited (if any) opportunity to pick their own.
Assignment purchases are more difficult to finance.
Some lenders don’t offer financing for assignment sales, so this will reduce the list of potential financial institutions that can finance your purchase. It’s important to check with your mortgage broker or prospective lender before signing up to purchase a home on assignment.
Assignment purchases can be cash-intensive.
When buying a pre-construction home directly from the builder, buyers get the benefit of a long time window to pay the down payment, and can do so in progressive stages. When buying an assignment home however, sellers will require that a buyer come up with the entire amount that's been put down on the property to date, plus a profit to compensate for equity the property has gained. This means an assignment buyer could be putting down close to, if not more than 20% of the original purchase price as a down payment.
Assignment buyers need to bear the closing costs.
When you take over the contract to buy a pre-construction home, you also take on responsibility for the costs associated with closing and registration such as development levies, utility hookups and Tarion fees. We have a comprehensive article on buying pre-construction that covers these costs in greater detail.
Can you negotiate the price on an assignment sale?
When buying a property on assignment, you cannot negotiate the price because you are taking over an existing contract made between the original buyer and the builder. That said, the original buyer (assignor) may be willing to offer a cash discount or other incentive to the assignee for taking over the agreement, The original buyer’s willingness to offer additional incentives will depend largely on the state of the assignment market at that time. In a softer market which is characterized by a large number of available listings on the and/or softer than normal demand, assignment buyers will have more leverage to negotiate a better deal.
How much deposit do I need for an assignment sale?
The amount of deposit required for an assignment sale will vary depending on the terms of the sale. Generally, the buyer will need to provide a deposit of at least five percent of the purchase price.
Do you pay tax on an assignment sale?
Yes, you may have to pay taxes on an assignment sale. Depending on the jurisdiction, you may be required to pay capital gains taxes on any profits made from the sale. It is important to consult a qualified tax professional for advice on how to properly report any taxes owed on an assignment sale.
In the Province of Ontario, you are required to pay HST on an assignment sale. Typically, the HST is paid by the buyer.
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