I often get asked about the process of purchasing a new build on assignment. This type of transaction can be an excellent opportunity for the right buyer, but it's essential to weigh the pros and cons carefully before diving in. Below, I'll break down the benefits and potential drawbacks to help you make an informed decision.
What is an Assignment Sale?
In an assignment sale, the original buyer of a pre-construction home sells their rights and obligations to a new buyer before the property is completed. The new buyer takes over the purchase contract with the developer and closes the deal when the home is ready. Essentially, the first buyer "assigns" their contract to the second buyer for a price agreed upon between them.
The Pros of Purchasing a New Build on Assignment
Potential for Lower Pricing: Often, buyers who purchase a new build at the pre-construction phase may have locked in at a lower price before market appreciation. By purchasing on assignment, you could benefit from a more favorable purchase price compared to current market rates for new or resale homes in the same area.
Skip the Waiting Time: Buying a pre-construction home typically involves waiting for the building to be completed, which can take several years. With an assignment sale, you may only have a few months left until the home is ready for occupancy, allowing you to move in sooner.
Customization and Upgrades: In many cases, the original buyer has already chosen customizations and upgrades for the unit. As the new buyer, you can benefit from these choices without paying the initial design fees or waiting for selections to be made.
Avoid Bidding Wars: Assignment sales typically avoid the heated competition that resale properties experience in a hot market. Since you're purchasing the original contract, you're less likely to face multiple offers driving up the price.
The Cons of Purchasing a New Build on Assignment
Higher Upfront Costs: An assignment sale often requires a larger down payment than a traditional resale home, as you're not just covering the deposit with the developer but also paying the original buyer's premium (the difference between the original purchase price and the current value).
Limited Negotiation Room: Because you're buying from the original buyer, there's often less room for negotiating on price or terms compared to a traditional resale property. The seller may want to recoup their investment, making it harder to strike a deal.
Developer Approval: Assignment sales usually require approval from the developer, which can slow down the transaction process. Some developers also charge a fee for processing assignment sales, adding another cost layer for the buyer.
HST and Closing Costs: In Canada, buying a new build on assignment may subject you to HST (Harmonized Sales Tax), which can be a significant cost. You'll also be responsible for the usual closing costs, which can include legal fees, land transfer tax, and more.
No Room for Personal Customization: Although you may benefit from the original buyer's customizations, you have no opportunity to make changes. If the selections made by the first buyer don't align with your tastes, you may end up with finishes or layouts you're not entirely happy with.
Is Purchasing on Assignment Right for You?
Purchasing a new build on assignment can be an excellent opportunity for buyers looking to get into a newly built home without the long wait. However, the upfront costs, taxes, and limited negotiation room can be significant drawbacks. It's important to work with a knowledgeable mortgage and real estate professional who can help guide you through the financial and contractual complexities of an assignment sale.
If you're considering purchasing a new build on assignment or have any questions about this unique opportunity, feel free to reach out. I'm here to help you navigate the process and ensure your next home purchase is a smart investment!
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