VancouverIslandProjects.com

You’ve likely heard people talk about ‘flipping’ a property. Maybe you wondered what they
meant?

Image Credit Flipping The Hard Way

Sometimes they mean they bought a property with the intention to spend some money and energy to update it and then to resell it within a reasonably short period of time for a tidy profit. They pay the purchase price and take ownership and possession. They may or may not live in it, but title is in their names until they ‘flip’ it by selling the property.

But sometimes ‘flipping’ means something else. It covers the situation where you sign a contract to purchase a property, but instead of ‘completing’ the transaction and taking title to the property, you sell your contractual rights to someone else. You never pay the full purchase price, you never ‘own’ the property, and you never take possession of it.

Image Credit Flipping the Contract

The person who purchases your contractual rights usually goes on to complete the transaction as specified in the original contract.

This latter meaning of ‘flipping’ is called an assignment. The original owner ‘assigns’ his contractual rights to acquire title, along with the corresponding duty to pay for it, to a third party.

While the paper work and terminology for an assignment is quite technical, the basic concept is quite straight forward. It’s use is quite common in relation to new construction in times of rising property values. Profit potential is frequently (but not always) the motivator.

Where profit is the motive, the general idea is to ‘buy’ a condo from the developer before, or during the early stages of, construction, usually with a modest down payment. The obligation to ‘complete’ the purchase will usually be many months away, once construction is complete. During the intervening time the market value of the property is expected to increase. An assignor’s objective is to ‘sell’ the contract before the date scheduled for completion.

Let’s suppose the original buyer finds a ‘buyer’ for the contract, that they work out a deal, and sign a proper Contract of Assignment. Everyone is happy. Nevertheless, it may be too early to break out the celebratory champagne just yet. Why?

What happens if the ‘assignee’ – the new third party – fails to honour his obligations to the original buyer? And why should you – the original buyer – care?

This is why.

You, the original buyer, are not relieved of your original contractual obligation when you assign that contract. If your ‘assignee’ doesn’t complete, the original vendor can enforce that contract against you.

Is there a lesson here? Yes, I think there is!

The day scheduled for completion will ultimately roll around, at which time you will be contractually obligated to pay the balance of the purchase price, or to suffer the financial consequences, if your assignee fails to complete. So, if you can’t afford to carry that financial load, or to take the financial hit, don’t fool around in the assignment game.

If you enjoyed this post, make sure you subscribe to my RSS feed!