Understanding the Assignment Discount: Why Assignments Are Priced Lower Than Finished Units

When buying property, many buyers face a choice between purchasing a finished unit or an assignment contract, often called a "paper contract." One common observation is that assignments tend to be priced lower than resale units that are already completed and ready to move in. This price gap is known as the assignment discount. Understanding why this discount exists can help buyers make smarter decisions and potentially save money in the real estate market.

This article explains the assignment discount in detail, explores the factors behind it, and offers practical insights for buyers considering assignments versus finished units.

Assignment contracts often involve properties still under construction

Assignment contracts often involve properties still under construction

What Is an Assignment in Real Estate?

An assignment in real estate occurs when the original buyer of a property sells their purchase contract to another buyer before the property is completed. Instead of buying the finished unit directly from the developer or a current owner, the new buyer takes over the original buyer’s contract.

This means the buyer is purchasing the right to buy the property at a future date, rather than the property itself at present. Assignments are common in pre-construction markets where buyers secure units early, often at lower prices, and then sell their contracts before closing.

Why Are Assignments Usually Cheaper?

The price difference between assignments and finished resale units comes down to several key factors:

1. Risk and Uncertainty

Buying an assignment means purchasing a property that is not yet completed. This carries risks such as:

• Construction delays or changes

• Market fluctuations affecting property value

• Potential changes in the developer’s plans or quality

  
  

Because of these uncertainties, buyers expect a discount to compensate for the risk they take on.

2. Lack of Immediate Possession

Finished units offer immediate possession and the ability to move in or rent out right away. Assignments require waiting until construction finishes, which could be months or years later. This delay reduces the property’s immediate value.

3. Financing Challenges

Lenders may be more cautious about financing assignments compared to finished units. Some banks require larger down payments or offer less favorable terms for assignment purchases, increasing the buyer’s cost and reducing demand.

4. Market Demand and Liquidity

Finished units are easier to sell because buyers can see and inspect the actual property. Assignments are less liquid since they depend on the developer’s approval and contract terms. This lower demand pushes assignment prices down.

5. Developer Restrictions and Fees

Developers often impose restrictions on assignments, such as approval processes, fees, or limits on assignment sales. These add costs and complications, which buyers factor into the price.

How Big Is the Assignment Discount?

The size of the assignment discount varies depending on the market, location, and project. In some cases, discounts range from 5% to 15% below the price of comparable finished units. In hot markets, the discount may shrink or disappear altogether.

For example, in a city where a finished condo sells for $600,000, an assignment contract for the same unit might be priced around $540,000 to $570,000. This difference reflects the risks and waiting period involved.

Practical Examples of Assignment Discounts

• Example 1: Toronto Condominium Market

In Toronto, buyers often see assignment discounts of about 7% to 10% during slower market periods. A unit listed at $700,000 finished might have an assignment contract available for $630,000 to $650,000.

• Example 2: Vancouver Pre-Construction Projects

Vancouver’s competitive market sometimes reduces assignment discounts to 3% or less. However, during market slowdowns, discounts can widen to 12% or more.

• Example 3: Smaller Cities or Suburbs

In less active markets, assignment discounts can be larger due to lower demand and higher risk perception, sometimes reaching 15% or more.

What Buyers Should Consider Before Buying an Assignment

Buying an assignment can be a smart way to save money, but it requires careful consideration:

• Understand the Contract Terms

Review the original purchase agreement carefully. Some contracts have clauses that limit assignment rights or impose fees.

• Check Developer Reputation

Research the developer’s track record for completing projects on time and to quality standards.

• Assess Market Conditions

Consider whether the market is rising or falling. A falling market increases risk for assignment buyers.

• Plan for Financing

Confirm with your lender what financing options are available for assignments and what down payment is required.

• Factor in Additional Costs

Include assignment fees, legal fees, and potential taxes when calculating total costs.

When Assignments Make Sense

Assignments can be a good choice if:

• You want to enter a desirable development at a lower price.

• You are comfortable with the risks of buying before completion.

• You plan to hold the property long-term and wait for completion.

• You have done thorough due diligence on the developer and contract.

  
  

When Finished Units Are Better

Finished units may be preferable if:

• You want immediate possession or rental income.

• You prefer to see the actual unit before buying.

• You want to avoid risks related to construction delays.

• You have difficulty securing financing for assignments.

  
  

Understanding the assignment discount helps buyers weigh the pros and cons of buying contracts versus finished units. While assignments offer potential savings, they come with risks and complexities that require careful evaluation.