As a Realtor with years of experience in residential, income, and pre-construction properties, I’ve seen how many buyers are confused by the concept of assignment sales. This is a term that’s commonly used in real estate, especially when dealing with pre-construction properties, but it’s not always fully understood. Whether you’re a first-time homebuyer or an investor looking to expand your portfolio, understanding assignment sales can give you an edge in the market and help you navigate this often-overlooked aspect of real estate transactions.
In this blog, I’ll break down what assignment sales are, how they work, and what you, as a homebuyer, need to know before diving into an assignment sale. It’s important to educate yourself about the ins and outs of this type of deal, especially in a market where pre-construction properties are becoming increasingly popular.
What is an Assignment Sale?
At its core, an assignment sale is when the original buyer of a pre-construction property sells their purchase agreement to another buyer before the property is officially closed. This typically happens before the property has been completed or even before the closing date. The buyer who is selling the property (the “assignor”) transfers their rights and obligations under the original purchase agreement to the new buyer (the “assignee”).
Think of it as a way to transfer ownership of a property that hasn’t yet been built or completed. The buyer doesn’t actually sell the property itself; instead, they sell the contract they signed with the developer. The new buyer takes over the terms of the original agreement, including the purchase price, closing date, and other terms.
Assignment sales are particularly common in the world of pre-construction real estate. Buyers often purchase pre-construction homes or condos with the intention of flipping them before the project is completed, or they may need to sell their contract before closing for a variety of reasons. This is where assignment sales come in as a solution for both parties.
How Do Assignment Sales Work?
The process of completing an assignment sale differs slightly from a regular real estate transaction, but it’s fairly straightforward once you understand the basic steps involved. Let’s break it down:
- Initial Purchase: The original buyer (the assignor) enters into a contract with a developer to purchase a pre-construction property. This contract typically includes a down payment and specifies the price, closing date, and other important details.
- Assignment of Contract: The original buyer then decides to sell the rights to the contract to a new buyer (the assignee) before the property is completed. The assignor works with their Realtor to find a buyer for the assignment and negotiates the terms of the assignment sale, which could include a markup on the original price.
- Due Diligence: The assignee needs to review the original contract, ensuring they’re comfortable with the terms and that the deal aligns with their own expectations. It’s essential to consult with a real estate lawyer who specializes in assignment sales, as there can be specific clauses that apply to the transfer of the contract.
- Developer Approval: The developer must approve the assignment sale. While this is often a formality, some developers may have restrictions or conditions that apply to assignment sales. For instance, they may require a fee to allow the assignment or stipulate that the original buyer must remain liable for certain obligations under the contract.
- Finalizing the Sale: Once all the paperwork is in order and the developer has approved the assignment, the assignee takes over the contract and completes the purchase when the property is finished. The original buyer receives a portion of the proceeds from the sale, while the assignee takes possession of the property once it’s built and ready for occupancy.
Why Do Buyers Choose Assignment Sales?
There are a few reasons why an assignment sale might be an attractive option for buyers. Understanding these motivations can help you decide whether it’s the right move for you.
One common reason for an assignment sale is that the original buyer no longer wants or is able to close on the property when the time comes. Life circumstances can change, such as financial setbacks or a change in location, and the buyer may need to sell the property before it’s completed. Rather than letting the property go to waste or losing their deposit, the seller opts for an assignment sale to transfer their rights to someone else.
On the other hand, an assignee may be looking to buy a property in a developing area where prices are expected to rise, but they don’t want to wait for the property to be completed. Assignment sales allow the assignee to purchase a pre-construction property before the development is finished, sometimes even at a lower price than it would cost on the open market once the project is completed.
For investors, assignment sales are an appealing option because they offer the ability to buy properties before they’re finished and potentially resell them once the development is complete. If the property’s value has increased, the investor can make a profit by assigning the contract to a new buyer.
What Are the Risks of Assignment Sales?
Like any real estate transaction, assignment sales come with their own set of risks that buyers should be aware of. One potential risk is the possibility of the project being delayed. If construction is postponed or the developer faces issues that delay the completion date, the buyer could be stuck holding onto a property they can’t move into or resell.
Another risk is the financial aspect. The price of the property in an assignment sale may not always be as low as it appears. The original buyer might sell the contract at a premium, which means you could end up paying more than you would if you bought the property directly from the developer at the closing stage. It’s important to conduct thorough research and assess whether the assignment price is truly a good deal.
Lastly, assignment sales often involve complex contracts, and mistakes or misunderstandings can occur. That’s why it’s crucial to work with a real estate professional who understands the nuances of assignment sales and a lawyer who can help review the documents to ensure everything is in order.
Conclusion: Should You Consider an Assignment Sale?
Whether you’re a first-time homebuyer, an investor, or someone looking for a unique opportunity in real estate, assignment sales can offer a great deal of flexibility and potential. However, they’re not without their complexities and risks. It’s important to approach an assignment sale with caution, do your due diligence, and seek expert advice to ensure you’re making a sound investment.
As someone who has dealt in pre-construction properties, I’ve seen how assignment sales can be a win-win situation for both buyers and sellers. The key is understanding how they work, being aware of the risks, and making sure you have the right support throughout the process. If you’re considering an assignment sale, make sure to work with an experienced Realtor who can guide you through the steps and help you navigate this unique aspect of the real estate market.