Table of content
- Introduction to Assignment Sales
- What is an Assignment Sale?
- How Do Assignment Sales Work?
- Key Terms in Assignment Sales
- Why Do People Use Assignment Sales?
- Is an Assignment Sale Legal in Alberta?
- Risks and Challenges of Assignment Sales
- Why Must a Seller Be a Licensed Real Estate Agent?
- Challenges for Real Estate Agents
- Understanding REIX and Its Impact on Assignment Sales
- What RECA Says About Assignment Sales
- Conclusion
Introduction to Assignment Sales
The term “assignment sale” often comes up in real estate, particularly in historically fast-growing markets like Toronto and Vancouver. But how does it work in Alberta? In simple terms, an assignment sale allows a buyer to sell their purchase contract for a property before actually taking possession of it. While assignment sales are legal in Alberta, they come with significant risks and legal complications.
One of the most critical aspects of assignment sales in Alberta is that if you are selling an assignment and you are not the legal owner of the home, you must be a licensed real estate agent. Even for licensed agents, assignment sales present challenges because REIX (Real Estate Insurance Exchange) does not provide coverage for assignment transactions. Due to this, many brokerages refuse to handle assignment sales, which limits the ability of real estate agents to facilitate these transactions.
Let’s take a deep dive into what assignment sales are, how they work, and the risks associated with them in Alberta.
Understanding Assignment Sales
What is an Assignment Sale?
An assignment sale is a real estate transaction where the original buyer (assignor) sells their right to purchase a property to another buyer (assignee) before the final closing. The assignee takes over the contract and is responsible for completing the purchase with the original seller or builder.
How Do Assignment Sales Work?
Assignment sales are more common in pre-construction condo sales than in single-family homes. The process typically works as follows:
- Buyer A (the assignor) purchases a pre-construction unit from a developer. The thought process here is that when pre-construction first starts Buyer A is able to get a better deal than when the condo starts getting traction and there are more wiling buyers.
- Before the unit is completed, Buyer A decides to sell their contract – usually Buyer A is trying to make a profit, though there can be many reasons to sell before the construction is completed including Buyer A coming upon financial hardship and can no longer afford the home they have committed to (this is becoming more common in the GTA and GVA in recent months as prices have started to come down.)
- Buyer B (the assignee) agrees to take over Buyer A’s purchase contract and eventually closes the deal with the developer.
The assignee pays the assignor the original deposit plus any price appreciation.
Key Terms in Assignment Sales
- Assignor: The original buyer who is selling their purchase contract.
- Assignee: The new buyer who takes over the contract.
- Builder/Developer: The original seller of the property.
- Assignment Clause: A contract condition that allows the buyer to assign their purchase agreement.
Why Do People Use Assignment Sales?
Common Reasons for Selling on Assignment
- Life changes (job relocation, marriage, divorce, family expansion)
- Financial difficulties (inability to qualify for a mortgage at closing)
- Investment strategy (selling at a profit without taking possession)
Financial Motives for Assignment Sales
- The assignor may have purchased at a lower price, and the property has appreciated.
- The assignor avoids the closing costs and mortgage liability.
Assignment Sales in Alberta: Legal or Not?
Is an Assignment Sale Legal in Alberta?
Yes, assignment sales are legal in Alberta. However, they come with restrictions:
- If you are not the property owner, you must be a licensed real estate agent to sell an assignment.
- REIX does not provide coverage for assignment sales.
- Many brokerages do not allow their agents to handle assignment sales.
Risks and Challenges of Assignment Sales
- Builder restrictions: Some developers prohibit assignments. (This is not legal though some builders do try to enforce it)
- Legal complexities: Contracts can be complicated and require expert review.
- Market fluctuations: If the market declines, the assignor may struggle to find a buyer.
The Role of Real Estate Agents in Assignment Sales
Why Must a Seller Be a Licensed Real Estate Agent?
Under Alberta law, selling an assignment is considered a real estate transaction. This means if you are not the legal property owner, you must be licensed to handle the sale.
Challenges for Real Estate Agents
- No REIX coverage: REIX does not insure agents for assignment sales.
- Brokerage restrictions: Many brokerages prohibit agents from handling assignments.
- Risk of legal disputes: If something goes wrong, the agent may be personally liable.
Understanding REIX and Its Impact on Assignment Sales
REIX (Real Estate Insurance Exchange) provides mandatory errors and omissions insurance for real estate professionals in Alberta. However, assignment sales are not covered by REIX, making them too risky for many agents and brokerages.
Learn more about REIX here: REIX Official Website
What RECA Says About Assignment Sales
According to RECA (Real Estate Council of Alberta), assignment sales are legal but must be disclosed. Agents must:
- Inform sellers in writing if they plan to resell a property through assignment.
- Avoid conflicts of interest.
- Ensure transparency in all transactions.
More details: RECA Official Guidelines
Conclusion
Assignment sales can be a lucrative but risky real estate strategy. While they are legal in Alberta, strict regulations apply:
- If you are not the owner, you must be a licensed real estate agent.
- REIX does not cover assignment sales, making them risky for agents and brokerages.
- Buyers and sellers should work with experienced real estate professionals and lawyers.
Understanding these risks and legalities is crucial before engaging in an assignment sale in Alberta.
