The Real Estate Podcast

Understanding Assignment Sales: SELLERS | The Real Estate Podcast EP306

In this episode of The Real Estate Podcast, Adrian Trott and Ariel Kormendy dive into the complexities of selling an assignment contract. If you’ve bought a pre-construction property and are considering selling before closing, this episode is packed with essential insights. We cover everything from reviewing the contract, advertising restrictions, and assignment fees to navigating negotiations and understanding tax implications. Be sure to check out the first episode where we discussed assignment sales from the buyer's perspective. 💬 Need help with your assignment sale? Contact us: www.kormendytrott.com 📌 Watch the first episode on assignment buying: https://youtu.be/bimZ2_H5oCk ************************ 0:22 – Intro 3:44 – The importance of reviewing the contract before selling 4:01 – Using AI tools like ChatGPT to summarize legal documents 6:36 – Advertising restrictions in assignment sales 7:39 – MLS restrictions and how to navigate them 9:11 – Negotiation tactics in assignment sales 10:30 – Buyer beware: Not all assignments are good deals 11:47 – Talk to your accountant regarding tax liabilities 13:35 – Case study: Deciding whether to sell or rent 15:40 – The role of realtors and mortgage brokers in assignment sales 18:06 – Outro/recap ************************ Want more real estate podcast discussions? Watch it here: youtu.be/uLhNb8fdHt4 Listen to it here: http://www.soundcloud.com/ktrealty Catch clips and highlights of the show here: http://www.instagram.com/kormendytrott ************************ Our Social: Instagram: www.instagram.com/kormendytrott  YouTube: www.youtube.com/user/kormendytrott  Facebook: www.facebook.com/kormendytrott  Twitter: www.twitter.com/KormendyTrott Soundcloud:http://www.soundcloud.com/ktrealty  LinkedIn: www.linkedin.com/company/ktrealty  Pinterest: www.pinterest.ca/KormendyTrott  TikTok: www.tiktok.com/@kormendytrott?lang=en ************************ In 2011, Ariel Kormendy and Adrian Trott formed The Kormendy Trott Team, now often referred to as KT (thanks to our logo!). The foundation of KT is built on providing unmatched value and attention to detail in everything we do. From our ever-expanding, comprehensive list of exclusive services to our expertly trained team, you will receive the highest level of care throughout your entire real estate journey. Originally a team of two in Milton, Ontario, the KT Team has grown into a large team of exceptional REALTORS®, a client-care department, and now includes KT media, KT Commercial and KT Property Management to provide our clients with a complete lineup of genuine, professional, and proven services across Halton Region, Peel Region and the surrounding Regions within the Greater Toronto Area. We’d appreciate it if you’d subscribe and follow us for behind-the-scenes footage, real estate tips, industry secrets, exclusive listings, The Real Estate Podcast, and more!

Broadcast on:: 23 Sep 2024
Audio Format:: other

- Chances are, you cannot advertise your assignment for sale to the public. - Which, to be clear, means you cannot, technically, legally, you cannot have it listed anywhere on the web. - You can't put it on KGG. - You can't have it on a Facebook group. It's basically word of mouth. Nobody abides by that. There are a lot of people, - Facebook groups, the rules there. - Welcome back, this is episode two of two in our two-part series on assignment sales. - You're watching or listening to the Real Estate Podcast. Today, we're talking to sellers. Enjoy. (upbeat music) - Welcome to the Real Estate Podcast, your go-to source for raw, unfiltered stories and expert tips. Whether you're a buyer, seller, tenant, landlord, or realtor, join us as we dive into the world of real estate. (upbeat music) - What's up, what's up, neighbor? - I was gonna say, what's up, partner? I'd like that you put a Sonos speaker in here when I came in the other day to put these up. - Yeah. - I pressed play and I heard a little bit more surrounds throughout the, it was nice. - Well, I told you why. - You were away on vacation. - Yeah. - I put one in here and one in my office. Jen and Tiffany were kind enough to get it all set up. And once it was set up, I did the tuning. You know how you can have it tuned for each room. - You walked around the hole. - For each one, walked around and then walked around the whole thing to kind of get it all in the same. - Oh, you do it individually. - Individually and then sink them all. - Jeez. - Yeah, so if you, so when we have events here, now we have, that's why I asked if you wanted one in your office. - Yeah, no, no, I don't be too loud, I think, even at the lowest volume. - If you're listening, actually, I don't even think if you're watching, you'll see it. We have a Sonos speaker tucked in the corner. So on all of our listings, we set up a Sonos speaker, which is a Wi-Fi speaker on each finished floor of the property. So we've got like, I don't know, 20 or 30 of them. And we had a couple of extras, so I figured-- - May as well put them to use. - May as well put it to use. - I know you're limited on time today, so let's maybe jump right into it. - Yeah, let's do that. So if you missed last week's episode-- - Shame on you. You must not be subscribed, so hit that subscribe button. - Thank you, because I was looking at the analytics for the past 30 days, and the numbers are going up significantly, but over 80% of people that watched the podcast on YouTube are not subscribed. So if you're watching on YouTube, please subscribe. Leave a comment, help us out. So last week, we talked about buying an assignment sale. Some of that information is transferable to this week's discussion, which is selling as an assignment. - So I would recommend to both buyers and sellers that they listen to both episodes, because it's good to know the information from both sides of the equation. - So I've been involved on this side of the equation a few times where our client approaches me and says, "Hey, I bought this new prop." And again, much like last week, we're talking more related to new construction, not resale. - It doesn't apply to both, but it's a highly, much more heavily weighted in the new construction segment. - Assignments are available on both, but we're focused kind of on the builder aspect. So I think first and foremost, the first thing I say to our potential seller is we gotta look at the contract, what you're allowed to do, what you're not allowed to do, and then the cost associated with everything if you're allowed to do it. Pro tip, chat GPT can help you tremendously. So if you have that document in an electronic format, chat 4.0, you can upload, and there's other AI programs, but I quite like the chat 4.0 where you can upload your attachments and-- - I've used it many times for legal documents. It's too handy. - Have you? - Yeah, it's really handy because it just-- - Can you give us an example? - Yeah, so I had a couple I was helping who were going through a separation. They had a legal separation document, and I needed information from it in order to help one of the parties. - Oh, I think you mentioned this. Did you talk about this in a podcast? - No, we did discuss it, but off camera. So I was helping one of the two people find a property to rent temporarily, and the separation agreement is something that most landlords want to see because they want to know, okay, what are the finances? Like where's the money coming from? And how is it separated? So I uploaded it into chat, GPT4, and I said, give me a summary of how much person B is getting paid from person A and where to find it in the document, and it broke it down very clearly, and I would say, save me half an hour of reading. - Yeah, so there's an example. If you have your original contract, you can upload it to chat GPT, have it look for what is your responsibilities for assigning, advertising, costs, all of that. So, and it's free. So before you start going into lawyer costs, that might be a quick way. And as a realtor, if you're a realtor, that's a good way to get a head start and save yourself some time. - Actually, I never thought of it, but even for just general real estate transactions, upload your contract and ask for a summary of what's included, what's not included, what are my responsibilities? - Yeah, did I miss anything? - Right. - Yeah, actually, we should train our, for those of you that use chat GPT, you can essentially train it to know everything about you, your business, what you like to see with certain things, what you don't like to see, how you like things formatted. We should probably do that. We'll save, save lots of time. So, that's the first thing that I do is I review the agreement. Now, what we talked about in the last episode is really, really important. And that's the ability to advertise. Chances are, you cannot advertise your assignment for sale to the public. - Which, to be clear, means you cannot legally, technically, legally, you cannot have it listed anywhere on the web. - You can't put it on, Gigi, Gigi. - You can't have it on a Facebook group. - It's basically word of mouth, really. - Yes. - Nobody abides by that. There are a lot of people, - Facebook groups and the rules there. - You know, the developer's probably not out there scouring the internet looking for listings. - Some of them do. - Yeah, sure. But, technically, you can't. So, and most definitely-- - Well, you wanna know if you can't. - Right. And most definitely, if they say you can't, then it's certainly, it's a no to realtor.ca listing. - So, the interesting thing is, the MLAs, the multiple listing service, is basically a bunch of real estate boards that feed into this system. A lot of the real estate boards do not allow assignment sales to be advertised on their board. So, even if the builder allows it, you probably still can't go to MLS. - Yeah. - So, even-- - Well, they get around that by saying it's new construction and having verbiage somewhere. - Yeah, I don't know. Depends how shady you wanna be, I suppose, with certain things, but-- - Like you always say. - Yeah. - And for those listing, I just slap my wrist. - Better to beg for forgiveness than ask for permission. So, review the agreement. - What did we talk about here last week? - To know if you can do one period. - Yes. - To know if you can, whether or not you can advertise it publicly. - Yes. - And to know what are your costs involved with the assignment? 'Cause the builder will have an assignment fee, administrative fees, legal fees, the list goes on. - Yeah, and then you gotta figure out who's paying for it. So, am I the seller now of this contract responsible or am I willing to pay for anything to make this look more attractive to a potential buyer? So, if you really got unload the place and you wanna make it super easy and cost effective for another buyer to take over the contract, then maybe you are paying for certain things in advance or giving a break on the price to offset that or whatever. So, there's a lot of negotiation that happens in an assignment sale in general. We talked about buyers having a upper hand at the moment in negotiating because there's a lot of people that need to offload these purchases. But at the same time, there's always a way to negotiate from the seller's perspective that, hey, this is a deal. I'm cutting you a deal and sometimes you don't have to give up as much if it depends on the demand of the unit, of course. - I think there's also, I think it's really important to have realistic expectations or realistic understanding of the market because I've seen many real estate agents advertise assignment sales saying, great deal by now. - Everybody's perception of a deal is different. - Right, and they may get lucky and trick somebody. But in many cases, those are not deals 'cause they're still over market value. You can go buy something new for less. - I'm a member of one of these Facebook groups. I don't know if you're a member of that one either and it's specifically for assignments and thousands of people in this group and a lot of realtors. And how many times I see a post distressed sale? - Oh yeah. - Have you seen those? - Yeah. - And what makes me laugh is some of them you see the original purchase price is less than the current asking price. Not the fuck is that a distressed sale? Do you know the definition of distressed sale? - Do you have a comment? - No. - You should. - That's not worth your time. - No, I've snoozed those groups because the stupidity that gets posted in some of them and the questions I just don't have any time or patience for it. I wanna point out, and again, a lot of what we talked about last week is very relevant. So I wanna touch on just a couple of quick things that are a little different. Really important if you're selling your original contract to talk to your accountant and review the numbers to know what your responsibility is from a tax liability perspective. So are there any capital gains? And how will you be taxed on that? Is there HST involved? Will you be responsible for that? And how, if can I claim it back? Can you, is there a rebate? Is so you wanna have a discussion? And then also the loss, if you're taking a loss on it, is it now a capital loss? Do the assignment costs and closing costs and land transfer tax and the realtor's fees and all of those things, any of those fees, are they now all attributed to a loss? - Right. - Because for some people, if they are in a distressed situation and have to sell their contract for somebody else to take over and they're taking a loss, for some people that loss, maybe it was their original deposit that money's already gone, they've already paid for it. But this year now, they can take a significant capital loss on their income towards their income and now save on federal and provincial taxes because that loss is bringing their income and taxable income down. So there could be, you need to talk to an accountant. - I think an important conversation that I have with sellers in this position, I had one recently, it wasn't an assignment sale, but it was a question of whether to sell or to rent. And it was in this particular situation, it was also a scenario where they were losing in either scenario. They'd bought it a couple of years ago and they lived in it for a year, rented it for a year, tenant just moved out. The price has now gone down by my estimation at the time I told him a value that was probably 60 to 75,000 less than what he paid for it. It's minus all of his expenses, too. And if you rented it, he was out of pocket 1,000 to 1,500 bucks, somewhere in that range. So for him, it was, he decided to sell. That was what he thought he was going to do. So I ran the numbers and I urged him not to. And I said, well, I think one, we can get you to rent up with a new tenant so we can get an extra couple hundred dollars a month in your pocket to ease that suffering a little bit. But also, I forecast with the future or a current direction of interest rates going down and projection of that continuing for a little bit into next year, I think prices will stabilize and start to come up again. So I think for him, the immediate loss of 75 to $100,000 easily versus a thousand bucks a month, it would take him a very long time to make up that difference as a monthly loss. So he was way better. As long as he could stomach it and manage the payments that he was way better off to rent it. - Essentially, you're mortgaging your loss. - Yeah, unfortunately. But to lose that much money immediately is pretty significant. - Yeah. Sorry, that's what he did. We rented it out again. He's got a new tenant and they actually moved in this weekend. - I mean, that's a good point because that's an important decision when looking at this option. And again, the importance of having a realtor that knows what they're talking about, that you can trust that knows the numbers can sit down and educate you on the options and what the end result of those options are gonna be 'cause it's not as simple as saying, oh, it'll rent for $1,300 a month or we can sell it for $400,000. No, it goes much deeper. - Well, I think in this scenario, a lot of it probably comes down to their carrying costs. They probably just can't afford to close on it. And I think another really important professional to have in their back pocket is a really good mortgage broker, mortgage agent, somebody that really knows the industry because my guess is they're selling it because they just think that they can't afford it. Either they can't qualify or it's just not feasible to carry. And I think if they have somebody that's really well versed in the mortgage industry, they may have some other suggestions that the first person didn't, whether it's do a short-term one-year thing, let's refinance it in a year with estimating that will be in a better position or maybe they have different lending options that they don't know about. - Well, that's it, right? Like if some people even deal with their primary big bank, you know, one of the big banks and the big bank says, oh, well, you don't qualify, there might be alternative lending solutions. It might be a short-term thing. And again, you gotta weigh out all those situations. So, you know, if you wanna add even another professional into that mix, a financial planner or somebody that can assess whether or not you can afford to take a loss because the difference between actually getting the funding and actually being able to afford it might be two different things. - Yeah. - So do you even know where your money goes every month? - Right. - Most people don't. - Yeah. You know, you're driving a brand new Porsche. - Right. - You know, but now you're taking a $2,000 a month loss on this condo. - Downgraded your car for a couple years. - Yeah, which would you rather have? I don't know, keep the condo or keep the Porsche. Which one's going up in value? - Yeah. - So anyways, if you're thinking of selling a property that you have a contract on specifically a new build we'd love to hear from you, love to help you, happy to have a free consultation and in the meantime, subscribe and follow us so you can get more information and get all these fun facts. - That's great, great, great. - Great, sounds wonderful. - Sounds great. Ciao, bye-bye. - So that concludes our two part series on assignment sales for both buyers and sellers. Hopefully the information we gave you will help you make an informed decision. Remember to click the link in our description to visit our website and contact us if you have any questions about buying or selling real estate. Have a great day.