What is an assignment sale? Definition and how it works in Ontario
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Summary: An assignment sale is a transaction in which the original buyer (the assignor) transfers their rights and obligations under an Agreement of Purchase and Sale to a new buyer (the assignee) before the deal closes, so the property changes hands before the original buyer ever takes ownership. Assignment sales are most common with pre-construction condos but can happen with resale properties too.
Assignment sales aren't widely understood, and they trip up plenty of first-time buyers and sellers. They're most common in the pre-construction space, where there's a long gap between signing and move-in, but they can occur with resale properties as well. This guide walks through how an assignment sale works, why they happen, and how they affect both buyers and sellers in Ontario.
What is an assignment sale?
An assignment sale is like passing the baton in a relay race before the finish line. The original buyer (the assignor) transfers their rights to buy a property to someone else (the assignee) before they officially own it. The transfer lets the assignee take over the assignor's rights and obligations under the Agreement of Purchase and Sale (APS). Assignments usually happen in pre-construction projects but can occur in other types of property transactions too. Put simply, an assignment lets the buyer of a home sell it before they take ownership.
Why do assignment sales happen?
Assignment sales can take place for a whole suite of reasons, but they typically happen when the buyer's personal circumstances change, whether financial, a lifestyle change, a work relocation, or something else. With pre-construction especially, the commitment to purchase happens well in advance of the move-in date, which leaves a lot of time for things to change and can leave a buyer needing to exit the deal before closing. An assignment is a way to transfer responsibility for the APS to another person without incurring the penalties that can come with trying to back out of the purchase altogether.
For an assignee, an assignment can be an attractive way to buy. They may be able to take advantage of a change in the property's value since the assignor's purchase, or they may have missed the chance to buy in the development the first time around. Either way, an assignment gives them a route to purchase a property on terms that work for them.
How does an assignment sale work?
Imagine you've agreed to buy a brand-new condo that's still under construction, and then life happens and you decide not to go through with the purchase. That's where an assignment sale comes in. Here's how it unfolds:
Original agreement. You've signed on the dotted line to purchase the condo.
Change of heart. For whatever reason, you opt not to finalize the purchase.
Finding a new buyer. You find someone who wants to take over your agreement.
Sealing the deal. You both sign an assignment agreement, transferring your purchasing rights to them.
Closing time. The new buyer finalizes everything with the developer.
This might sound straightforward, but it's laden with legal, financial, and contractual nuances that need careful navigation. That's why it's essential to engage a real estate lawyer as early as possible: they can advise you on the legal rights and obligations that come with an assignment.
What are the advantages of an assignment sale?
So why consider an assignment sale? For the seller (the assignor), it's a graceful exit from a property purchase, possibly with a profit if the property's value has increased. For the buyer (the assignee), it can be a way to get into developments that are no longer on the market, or to buy a property that has appreciated since its initial sale.
What are the challenges and risks?
It's not all rainbows and butterflies. Assignment sales come with their own set of challenges: legal hoops to jump through, financial implications such as taxes and fees, and the ever-present risk of a deal not going as planned. An assignment is a legally binding contract, so both parties need to do their due diligence and, most importantly, seek professional advice from a real estate agent, a real estate lawyer, and a tax professional. That might sound expensive, but not getting the right advice before committing can turn out to be far more costly.
There have also, unfortunately, been some bad actors in the assignment space. The good news is that regulators have stepped in to provide better oversight and protect consumers, but no regulator is perfect. That's all the more reason to engage multiple professionals on your assignment so you get unbiased, valuable advice.
How do you navigate the assignment sale market?
The assignment sale market is a vibrant, ever-changing landscape, heavily influenced by geography and current market conditions. Opportunities can differ significantly from one region to another, often reflecting local demand, economic stability, and the pace of new development. For anyone exploring assignment sales as a buyer or a seller, understanding these regional dynamics is essential.
One effective strategy for spotting good opportunities is to monitor developments that have reached their sales capacity. Sold-out projects often signal high demand for a particular area or development, which makes assignments from those projects especially appealing to buyers looking to get into sought-after locations.
The specialized nature of assignment sales calls for real estate professionals with real depth and experience in this part of the market. Agents who specialize in assignments can offer valuable insight, connect buyers and sellers, and help navigate the complex regulatory and contractual landscape.
Assessing the value and potential of an assignment takes a comprehensive approach. Buyers should do thorough due diligence: review the original purchase terms, understand any restrictions or conditions imposed by the developer, and analyze current market trends to gauge the property's potential to appreciate. For sellers, setting the right price and timing the market well are key to maximizing returns.
Frequently asked questions
What is an assignment sale in real estate?
An assignment sale is a transaction in which the original buyer transfers their rights and obligations under an Agreement of Purchase and Sale to a new buyer before the deal closes, so the property changes hands before the original buyer takes ownership. It's most common with pre-construction condos.
What is the difference between the assignor and the assignee?
The assignor is the original buyer who is transferring their purchase rights. The assignee is the new buyer who takes over those rights and obligations and completes the purchase with the developer or seller.
Are assignment sales only for pre-construction condos?
No. Assignments are most common in pre-construction, where there's a long gap between signing and move-in, but they can occur with resale properties too.
Do I need a lawyer for an assignment sale?
Yes. An assignment is a legally binding contract with legal, financial, and tax nuances, so it's important to engage a real estate lawyer early, along with a real estate agent and a tax professional.
Can the seller make a profit on an assignment sale?
They can, if the property's value has risen since the original purchase. But assignment profits can carry tax implications, so confirm the treatment with a tax professional before you commit.
About the author
Joel Fox is a co-founder and COO at Ownright. He helps run the firm's day-to-day work on Ontario residential closings, refinances, and sales, and writes regularly to demystify the parts of a transaction that most homeowners only encounter once or twice in their lives.
At Ownright, we focus entirely on Ontario residential real estate law. We have experienced real estate lawyers who can help you navigate the tricky world of assignments, and we also support standard purchases, sales, refinances, ownership changes, and status certificate reviews. You can start your closing online or get in touch with any questions.
Important note: This article is not legal advice. No one should act, or refrain from acting, based solely on the information in this post or any linked materials without first seeking appropriate legal or professional advice.
