Shadow flipping has been in the news recently with Agreements of Purchase and Sale being assigned to a new buyer two or even three times before closing.
This does happen in the GTA with some new home or condo purchases, but only if the builder’s original Agreement allows for it and several do not. There’s a potential incremental HST cost to each purchaser and the rebate may be forfeited because the original purchaser who signed the builder’s Agreement and agreed that the home would be a principal residence will not be moving into the home. It’s very confusing for buyers and sellers and their Realtors. Pat and I took a course about this topic that was taught by a local Real Estate lawyer and the consensus at the end of the course was that the tax calculations were too complicated and we should all stay away from assignments of new builds.
But, an assignment isn’t always bad. It can be used when something happens and the original buyer cannot close the transaction.
We had a case where the buyers had two dogs. The condo they purchased only allowed one dog. We all missed it. We asked about the pets policy at the concierge desk but not at the management office. The lawyer was the buyer’s lawyer who did their wills and did not have real estate experience so he missed this vital part of the status certificate. So when the buyers asked, after waiving the status certificate review condition and firming up the purchase, how they should register their dogs, they were told they could only move one dog in. They were heartbroken. We suggested that we help them get someone to take over their agreement of purchase and sale.
Rather than list the unit for sale on MLS, which would cost the buyers commission, we helped them write an ad on one of the free sites. We showed the condo during a revisit (with the Seller’s blessing because he knew what had happened), and helped the non-real estate lawyer with the assignment agreement. I actually sent the sample agreement that we used in class. The original purchase didn’t register on title, but the assignment did. This saved the original buyer from having to pay land transfer tax. The purchase price was the same so capital gains tax was not an issue.
The takeaway from this story is that assignments are sometimes necessary and more importantly, be wary of pet restrictions in condos. Disclaimer: The dog in the photo is Jase Belsito and is not the dog from the story.