The severe shortage of listings has created multiple offers, bidding wars and unprecedented price increases. Serious buyers are finding it extremely difficult to find suitable properties. Consequently, many buyers are looking to purchase properties via Assignments. This column will explain the basics of Assignment transactions and what realtors need to know when involved in an Assignment transaction. For clarity, Assignments in this column will refer to an Assignment of a newly constructed home from a builder.
Here are some important things to remember about Assignment transactions:
1. Assignments are not the same as buying a resale property. When purchasing an Assignment, you, as the Assignee Purchaser are purchasing the original contract made between the original Purchaser (Assignor) and the builder.
2. Before doing an Assignment, the Assignor or its realtor should first confirm that the builder will grant its consent to the Assignment. Without this, the Assignment transaction cannot proceed.
3. The Assignee must know and understand what it is purchasing. It is therefore imperative the Assignee has a lawyer review both the Assignment Agreement and the original builder Agreement.
4. Every Assignment Agreement is different and unique and there is no standard or uniform way to draft the Assignment Agreement.
5. Drafting an Assignment Agreement is not like drafting an ordinary resale Agreement. For this reason, it is critical that the realtor insert a clause in the Assignment Agreement making it conditional on lawyer approval.
6. The most confusing aspect of the Assignment Agreement is determining when the Assignment price (deposit paid to the builder and profit) are paid to the Assignors. A carefully drafted Assignment Agreement should address this and other issues.
7. The Assignment Agreement must be conditional on the builder granting consent to the Assignment. The time period for the consent cannot be too short as neither the Assignors nor the Assignee has any control over when the builder will grant consent to the Assignment.
8. For Assignors, it is important to remember that most builder Agreements prohibit the assignors from listing, advertising or posting the sale of the property on the multiple listing service. Builders also charge a fee for granting the Assignment. The amount of the fee varies from builder to builder.
9. There may be tax consequences relating to the Assignment. Therefore, it is prudent for the parties to obtain tax advice from an accountant.