What Is A Presale Assignment?
Presale real estate contracts are those entered into before the residential unit has been built, or construction is not yet complete. Generally, buyers of presale units are permitted, under certain circumstances, to sell those Contracts to a third party, which is known as an Assignment. Often, but not always, the Assignment is sold to the new buyer at a higher price than the original Contract with the profit going to the seller of the Assignment (the original buyer).
What Is Shadow Flipping?
This occurs when a person enters into a Contract to purchase a property, and then re-sells the Contract to a third party, without the knowledge of the original seller and before the closing date of the sale. Typically, the profits would go directly to the person selling the contract to a new buyer. While this practice is not illegal, it is an ethical issue that has long been debated. This is because the original seller loses out on the potential profit which could have been achieved on the sale of the property.
Under regulations enacted in May 2016 by the Real Estate Services Act in British Columbia, shadow flipping was essentially banned. In an effort to ensure transparency for all parties involved, the new rules state that all Contracts must contain a clause that the Contract cannot be assigned without the Seller’s consent. In addition, any profit generated from the resale of the Contract to a third party must go to the original Seller.
While these new rules offer protection to the Seller, they only apply if the transactions are handled by persons licensed to provide Real Estate Services. This means if the transactions were handled privately, without a real estate professional, then the above rules do not apply.
Pricing
Selling a presale Contract to a third party doesn’t necessarily raise prices. This is because the re-sale of the presale Contract is increasing the inventory for sale on the market, thereby increasing the supply available to buyers. With real estate prices dropping in Vancouver and other large markets, as well as higher interest rates and fewer buyers, the potential for a large profit is becoming more scarce.
Shadow flipping, now basically outlawed, also does not raise prices in the market. With full disclosure required, this practice is no longer the threat to the market it once was and prices are not artificially inflated as a result.
As with any large purchase, having a complete understanding of the transaction is critical. Make sure to use a qualified real estate professional who will have your best interests in mind and hire an attorney to assist with the paperwork and closing on your behalf. You’ll also want to touch base with your accountant to find out any tax implications of selling a presale Assignment.
Contact the team at ASSIGNTODAY.COM to sell and buy presale assignments!
Leave a Reply