3 Things You Should Know About Assignment Sales

By: Dana Gain

3 Things You Should Know About Assignment Sales

Tags: assignment sale, assignment sales, what is an assignment sale, what are assignment sales, new construction, interim occupancy, buying from a builder, buying a contract, buying a home, buying a house, homes for sale, houses for sale

If you have never heard of an assignment sale before, you are not alone. Most folks we speak to just haven’t had occasion to run into it before, so it remains a bit of a mystery. 
 
What exactly is an assignment sale? The most common type is where the original buyer of a new construction home decides to sell before they take occupancy. 
The new buyer then completes the purchase directly with the builder.

Importantly, assignment sales are not limited to new construction. More broadly, an assignment sale is a transaction in which an original purchaser (assignor) assigns their purchase agreement to a new buyer (assignee) prior to the original purchase agreement closing. 
 
Your best source of information on the assignment sale process will be your real estate lawyer, because what is changing hands is essentially a contract. However, if you would like to understand the general concept a bit more, read on.

Often the property itself is still under construction, and it may be days, weeks, or even months from actual completion. The property could be ready for occupancy before the completion date with the builder, so it may be possible to move in and enjoy your new space even before your mortgage begins.
 
The primary advantage of an assignment sale is that you’re obtaining a home that has never been lived in, and of course everything is brand new. New properties also come with a new home warranty that is valid for 7 years, so if anything goes wrong with the property itself a buyer is largely protected.

But there are some key differences when dealing with assignment sales that buyers should understand. Let’s look at 3 things home buyers should know about assignment sales, including how the process differs from a resale property, why buyers would consider one, and how risk factors in.
 
How Is The Assignment Sale Different From Resale?
 
Let’s imagine the regular resale process first. In a typical resale scenario, a buyer reviews photos in a listing, decides they like the property, and subsequently sets up a showing with their REALTOR®.
 
The buyer in our scenario then walks through the house, confirms they wish to buy it, and makes an offer.
In an assignment sale, buyers review renderings rather than photos. A rendering is a computer-generated image of what the property is expected to look like. There are likely just a few of these photos to look at, rather than the dozens typically included in a normal resale, but they usually include a floorplan among the images so you can better imagine the layout. 
 
The stage where the buyer normally visits the property, walks around and imagines living there – this step is omitted in an assignment sale. Unless the builder is mere days from occupancy, which is rare, a buyer will likely be purchasing the new construction home based on just a few renderings, a floorplan, and a contract.

Home builders understand this challenge, which is why model homes were invented. Buyers can walk around, get a sense of the layout and how the space might be used, and decide if they like it enough to buy it.
 
But with an assignment sale, there generally are no model homes left to visit. What remains are a few renderings and a floorplan. This makes assignment sales less attractive for some buyers. There’s just not much information to go on, and a lot of money riding on the decision.
 
Why Would You Buy An Assignment Sale?
 
Many buyers like the idea of the property being brand-new and never-lived-in. If a buyer has missed out on an opportunity to buy into a development while it was still in the active selling stage by the builder, it opens the door to a second chance to buy one of those units or homes.

Also, buyers looking at making a smaller investment in the short term (usually just the deposit, but it varies) and are comfortable waiting up to several months or a year or two before moving in, assignment sales can be an attractive alternative.
 
For the purchaser holding the contract with the builder, selling can be a lucrative option if some time has elapsed since entering into the agreement, and some appreciation has accumulated that they can cash in on. Note however that not all builders allow assignments, so if you are looking to purchase new with the intent to sell before occupancy, make sure you check in with your real estate lawyer before signing on the dotted line.
 
What Is Your Risk?
 
An assignment sale is not without risk. Depending on how much time remains before the project completes, a buyer may be at risk for some of their deposit, paying early profit to the seller, or both.

Tarion New Home Warranty does provide some coverage for deposits paid on new construction, however there are limits to how much coverage is provided. 
 
In addition, the project may not complete on time. Your move-in date may be delayed, sometimes more than once, which could present a challenge if you have identified a specific date to sell your home or give your notice on a rental. 

Importantly, there is often very little room for negotiation or amendment to the original agreement made with the builder. The new buyer is mostly at the mercy of the original contract in terms of deposit structure, appliances, interior finishes and so on.
 
Other risks exist as well, depending on the nature of the development and the timeline to completion.
 
That said, assignment sales can be a good alternative if you have flexibility around your moving timeline and can ensure you are not exposed financially. If you are considering an assignment sale, be sure to check with your real estate lawyer to understand what risks may exist for your situation and how best to mitigate them.***



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