Guide To Pros and Cons of Assignment Sale

Fundamental Difference Between a Resale vs Assignment Sales

August 27th, 2024

A resale is a transaction where the buyer purchases a property from the original owner. The property is already completed and ready to move into. On the other hand, an assignment sale is a transaction where the buyer purchases the rights to a property from the original owner. The property is under construction and is still being prepared to move into. Here is a table that summarises the key differences between Resale vs Assignment Sales

Feature	Resale	Assignment Sale
Property Status	Completed	Under construction
Availability	Listed on MLS	Not listed on MLS
Mortgage requirements	Yes	No
Closing date	60-90 days	Varies
Risks	Title risk, builder risk, construction risk	Title risk, builder risk, construction risk, assignment risk

Table of Contents

What are the Pros and Cons of an Assignment Sale?

Assignment sales, also known as contract assignments or flipping contracts, are common in the real estate market. In an assignment sale, a buyer who has entered into a purchase agreement with a seller transfers their rights and obligations under the contract to a third party before the completion of the sale. While assignment sales can offer certain advantages, they also have potential drawbacks. Let’s explore the pros and cons of Assignment Sales:

Pros of Assignment Sales
- One of the primary advantages of assignment sales is the potential for a significant profit. Assignors can secure a property at a lower price and then sell their contract to a new buyer at a higher price, capitalising on market appreciation or favourable negotiation.
- Assignment sales allow buyers to secure a property without obtaining a mortgage or making a down payment upfront. This flexibility can benefit investors or buyers who may need more immediate access to funds but want to secure a property at a particular price.
- Assignors can avoid the financial risks of property ownership, such as mortgage payments, property taxes, and maintenance costs. If the market conditions change or the buyer’s circumstances alter, they can sell the contract to another party without taking on these financial burdens.
- Assignment sales provide a quick exit strategy for buyers who may change their minds or encounter unforeseen circumstances that prevent them from completing the purchase. By assigning the contract to another buyer, they can exit the transaction without the complications of selling the property on the open market.
Cons of Assignment Sales
- Assignment sales involve intricate legal processes and require the involvement of multiple parties, including the original buyer, the assignee, the seller, and sometimes even lenders. The complexity can lead to challenges, delays, and increased legal expenses.
- The success of an assignment sale depends on the consent of the original seller. Some sellers may not permit or may have restrictions on assignment sales, limiting the pool of potential properties available for assignment.
- As an assignor, you relinquish control over the property and the final sale process once you transfer the contract to the assignee. This lack of control can be frustrating if the assignee’s actions or decisions affect the property negatively or lead to complications.
- In a declining market, an assignor may need help finding a buyer willing to pay the assigned price. This can result in financial loss if the assignor cannot sell the contract or need to sell it at a lower price than they initially anticipated.
- Some critics argue that assignment sales contribute to housing speculation and affordability issues, as they can drive up prices and limit housing supply. This perception can lead to negative public sentiment and potential regulatory scrutiny in some markets.

Assignment Sales for Sellers: What are its Advantages?

- Higher Selling Price: In an assignment sale, sellers can sell their property more elevated than the original purchase price. Assignors, who act as intermediaries, often negotiate a higher price with the new buyer due to market appreciation, renovations, or other factors. This allows sellers to maximise their profit and earn more than anticipated.
- Faster Sale Process: Assignment sales can expedite the sale process for sellers. Rather than waiting to complete the original contract, sellers can transfer their rights and obligations to the assignee. This enables them to sell the property without going through the typical marketing and negotiation process, which can save time and effort.
- Avoidance of Holding Costs: Sellers can avoid holding costs associated with property ownership by selling through an assignment. These costs may include mortgage payments, property taxes, insurance, maintenance, and other ongoing expenses. Selling through an assignment allows sellers to transfer these responsibilities to the assignee, potentially saving them money in the long run.
- Increased Flexibility: Assignment sales provide sellers more flexibility regarding their plans. By completing the sale through an assignment, sellers can move forward with their plans without waiting for the original contract to close. This can be particularly advantageous if sellers need to relocate, downsize, or make other arrangements quickly.
- Lower Marketing Costs: When selling a property traditionally, sellers often need to invest in marketing efforts to attract potential buyers. This can include listing fees, advertising expenses, staging costs, and other related expenditures. In an assignment sale, the assignee typically assumes the responsibility of finding a new buyer, reducing or eliminating the need for sellers to incur marketing expenses.
- Minimised Default Risk: In certain situations, sellers may encounter circumstances that prevent them from completing the original purchase contract. This could be due to financial constraints, changes in personal circumstances, or other unforeseen events. By assigning the contract to a new buyer, sellers can avoid defaulting on the contract and potential legal consequences.

What are the Advantages of Assignment Sales for Buyers?

Assignment sales offer several advantages for buyers in the real estate market. Here are the key benefits of assignment sales for buyers:

- Potential for Lower Purchase Price: Buyers engaging in assignment sales can secure a property at a lower purchase price than buying on the open market. Assignors often negotiate a favourable purchase price when they contract with the original seller. This can be advantageous for buyers looking for a good deal or who want to invest in properties with potential appreciation.
- Flexibility in Financing: Buyers participating in assignment sales can enjoy greater flexibility in financing options. Since they are buying the contract from the assignor, they may not need to secure a mortgage or make a substantial down payment immediately. This flexibility can be particularly beneficial for buyers needing more immediate access to large sums of money or facing challenges in obtaining traditional financing.
- Ability to Customize the Property: In some cases, buyers engaging in assignment sales can customise or make changes to the property before the completion of the sale. This flexibility allows buyers to tailor the property to their preferences by selecting finishes, fixtures, or design elements and creating a personalised living space or investment property.
- Potential for Profit: Assignment sales can provide buyers with profit potential. Suppose market conditions favourably change between the time the assignor entered into the contract and the completion of the sale. In that case, buyers can sell the property at a higher price, capturing the appreciation and generating a profit without ever taking ownership. This profit potential can attract investors or buyers looking for short-term gains.
- Expedited Purchase Process: Assignment sales can facilitate a faster buyer purchase process. Rather than going through the lengthy process of searching for a property, negotiating with sellers, and dealing with potential competing offers, buyers can step into an existing contract and finalise the sale with the assignor. This can save time and streamline the purchase process, allowing buyers to secure a property quickly.
- Lower Transaction Costs: Assignment sales may involve lower buyer transaction costs than traditional property purchases. Since buyers purchase the contract from the assignor, they may not need to pay certain closing costs associated with the initial purchase, such as land transfer taxes or legal fees. This can result in savings and make the overall transaction more affordable for buyers.

What Disadvantages Does a Buyer Face on Assignment Sales?

Here are the key drawbacks of assignment sales for buyers:

- Limited Property Selection: Assignment sales often involve a limited pool of properties. Assignors may sell their contracts for various reasons, such as properties with a potential appreciation or in-demand locations. As a result, buyers participating in assignment sales may have fewer options than in the broader real estate market.
- Potential Seller Consent Issues: The success of an assignment sale depends on the consent of the original seller. Some sellers may have restrictions on assignment sales or may simply refuse to allow the transfer of the contract to a new buyer. This can create challenges for buyers who have invested time and effort into an assignment transaction only to have it rejected by the original seller.
- Lack of Control and Information: Buyers engaged in assignment sales have limited control over the original contract and the terms negotiated by the assignor. They may have yet to be involved in the initial negotiation process, which can lead to uncertainty about the terms and conditions of the purchase. Additionally, buyers may need more access to information about the property, its history, or potential issues, as they rely on the assignor for this information.
- Increased Complexity and Potential Delays: Assignment sales can be more complex than traditional property purchases. Multiple parties include the original seller, the assignor, and potential lenders. This complexity can lead to delays, as other legal and administrative processes may be required. Buyers may need to navigate various agreements and documents, potentially leading to more extended closing periods or increased legal expenses.
- Higher Risk of Non-Completion: Assignment sales carry a higher risk of non-completion than standard property purchases. Since buyers are assuming a contract from the assignor, they may face uncertainties and risks associated with the assignor’s ability to fulfil their obligations. If the assignor fails to complete the contract, it can lead to complications, potential legal disputes, and the loss of any invested time or resources.
- Market Fluctuations and Financial Loss: While assignment sales can offer profit potential, they also expose buyers to the risk of financial loss. Suppose market conditions decline or change unfavourably between the time of the assignment and the completion of the sale. In that case, buyers may need help to sell the property for a profit. Sometimes, they may need to sell lower than the initial purchase price, resulting in a financial loss.

What are the Disadvantages of Assignment Sales for a Buyer?

Here are the key drawbacks of assignment sales for buyers:

- Limited Property Selection: Assignment sales often involve a limited pool of properties. Assignors may sell their contracts for various reasons, such as properties with a potential appreciation or in-demand locations. As a result, buyers participating in assignment sales may have fewer options than in the broader real estate market.
- Potential Seller Consent Issues: The success of an assignment sale depends on the consent of the original seller. Some sellers may have restrictions on assignment sales or may simply refuse to allow the transfer of the contract to a new buyer. This can create challenges for buyers who have invested time and effort into an assignment transaction only to have it rejected by the original seller.
- Lack of Control and Information: Buyers engaged in assignment sales have limited control over the original contract and the terms negotiated by the assignor. They may have yet to be involved in the initial negotiation process, which can lead to uncertainty about the terms and conditions of the purchase.
- Additionally, buyers may need more access to information about the property, its history, or potential issues, as they rely on the assignor for this information.
- Increased Complexity and Potential Delays: Assignment sales can be more complex than traditional property purchases. Multiple parties include the original seller, the assignor, and potential lenders. This complexity can lead to delays, as other legal and administrative processes may be required. Buyers may need to navigate various agreements and documents, potentially leading to more extended closing periods or increased legal expenses.
- Higher Risk of Non-Completion: Assignment sales carry a higher risk of non-completion than standard property purchases. Since buyers are assuming a contract from the assignor, they may face uncertainties and risks associated with the assignor’s ability to fulfil their obligations. If the assignor fails to complete the contract, it can lead to complications, potential legal disputes, and the loss of any invested time or resources.
- Market Fluctuations and Financial Loss: While assignment sales can offer profit potential, they also expose buyers to the risk of financial loss. Suppose market conditions decline or change unfavourably between the time of the assignment and the completion of the sale. In that case, buyers may need help to sell the property for a profit. Sometimes, they may need to sell lower than the initial purchase price, resulting in a financial loss.

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Frequently Asked Question (FAQs)

What is the purpose of resale?

Resale is to transfer ownership of a previously owned item or property from the seller to a new buyer.

What is selling and reselling?

Selling refers to exchanging goods or services for monetary compensation, while reselling involves selling something previously purchased, typically to make a profit.