Over the past decade, we have seen new home sites open their sales offices with long lineups and almost immediately install “sold out” signs. I remember walking around downtown Toronto and seeing long lines, finding out that a new condo building was selling condos that were not set to close for a couple of years. I chatted with some people in the lineup, and a few said they were looking for a condo to live in, however many were buying for investment. Given that prices in the GTA in 2010 for a home were $431,000 and by the end of 2015 the average price had jumped to $622,000 it is understandable that people believed prices would continue to rise. And rise they did.

Selling the house before moving in

Enter the word “assignment.” Assignment is defined as selling a contract you own, to another Buyer. In the case of a new home offer to purchase, it is when a Buyer sells their purchase agreement to another Buyer, for a profit. By doing this, the original Buyer avoids having to close on the property and pay the closing costs along with setting up a mortgage. In reality, what happens is the original Buyer gets some cash out of the new Buyer who closes on the property. This can happen when inventory is low or when a really hot development sells out quickly and a Buyer hoping to live in that complex is looking for a way in.
If you think this idea of selling an agreement to purchase is new, think again, I met a person who had purchased 5 condos, pre-construction at Sailwinds, the original condo building located in Whitby by the harbour with the intention of assigning the agreements. This was in 1990.

When a market is rising, with values increasing yearly, it is a safe bet to buy a condo or a detached home with a long closing date, safely assured that by the time you are months out from taking possession of the property there would be a Buyer eager to hand over money to buy what you have at a premium. Until it stops happening.  What happens when there is no Buyer to assign the offer to? There are several directions things can proceed; they can choose to close on the property, get a mortgage and pay the fees to take possession, or they can decide to not close. In the event they choose not to close, (full disclosure, I am not a lawyer, however, I have been part of a conversation such as this many times) they will lose their deposit and possibly be sued by the Builder for any losses.

Purchasing an agreement

You see some assignment sales on the Multiple Listing System; however, they are rare, with most being sold Agent to Agent, or on some online sites that specialize in these types of sales. Honestly, there is nothing wrong with a Buyer assigning their agreement to another, as long as the Builder does not disallow it in the agreement, it is their right if they can find a willing participant. One online site is BrokerPocket a platform helping to connect Buyers looking to purchase assignments.

This has been happening in Durham Region with the high volume of new home construction. Many of the new home construction sites had closing dates of more than 2 years, allowing for the values to increase as the Buyer waited for the home to be built. New homes tend to sell for values higher than resale prices but tend to follow the same average monthly increases. The prices in the Durham region, on average, have jumped from $734,000 in Aug/20 to $920,000 last month. If a Buyer purchased a home 2 years ago, and the values have increased by over $180,000, by offering the home as an assignment sale at a price below the current prices they have a good chance of selling the contract.

Since February, we have seen the market shift, mortgage rates increase and some uncertainty creep into the market. This is causing Buyers to sit on the sidelines and one can only imagine that Buyers of new construction who had hoped to assign their agreements are getting nervous.

The cost of closing a property in the $600,000 range is around $12,000 in closing costs. Along with setting up a mortgage, this is a sizeable amount of money to come up with on closing day, along with the balance of downpayment, which if the home is purchased as an investment would be $120,000 at this price.

Buyers looking for a deal – the [sometimes] gift of a long closing date

The opportunity here is for a Buyer looking to find a deal. In the event they find a person who has a contract to purchase a home they might be interested in, they may be able to secure the property at a value that may be above what the original Buyer paid, but if there is an urge to quickly sell the offer, at a price dramatically lower than today’s values.

Long closing dates can be a gift with prices increasing, however, when the market shifts, the rates spike up and there is a cooling off, they can be a form of stress and anxiety.
If you are looking to buy a new build with a long closing date, ensure you have the ability to close. This takes any stress out of the process, and if someone approaches you to buy your contract, if it works go for it. Good advice is to not enter into a purchase agreement without the ability to complete the transaction. That is when things have a chance to go sideways.
If you have questions about assignment sales, or if you have a need to sell a property you currently have, I can be reached at lindsay@buyselllove.ca

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