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How To Navigate The Real Estate Assignment Contract
What is assignment of contract?
Assignment of contract vs double close
How to assign a contract
Assignment of contract pros and cons
Even the most left-brained, technical real estate practitioners may find themselves overwhelmed by the legal forms that have become synonymous with the investing industry. The assignment of contract strategy, in particular, has developed a confusing reputation for those unfamiliar with the concept of wholesaling. At the very least, there’s a good chance the “assignment of contract real estate” exit strategy sounds more like a foreign language to new investors than a viable means to an end.
A real estate assignment contract isn’t as complicated as many make it out to be, nor is it something to shy away from because of a lack of understanding. Instead, new investors need to learn how to assign a real estate contract as this particular exit strategy represents one of the best ways to break into the industry.
In this article, we will break down the elements of a real estate assignment contract, or a real estate wholesale contract, and provide strategies for how it can help investors further their careers. [ Thinking about investing in real estate? Register to attend a FREE online real estate class and learn how to get started investing in real estate. ]
What Is A Real Estate Assignment Contract?
A real estate assignment contract is a wholesale strategy used by real estate investors to facilitate the sale of a property between an owner and an end buyer. As its name suggests, contract assignment strategies will witness a subject property owner sign a contract with an investor that gives them the rights to buy the home. That’s an important distinction to make, as the contract only gives the investor the right to buy the home; they don’t actually follow through on a purchase. Once under contract, however, the investor retains the sole right to buy the home. That means they may then sell their rights to buy the house to another buyer. Therefore, when a wholesaler executes a contact assignment, they aren’t selling a house but rather their rights to buy a house. The end buyer will pay the wholesale a small assignment fee and buy the house from the original buyer.
The real estate assignment contract strategy is only as strong as the contracts used in the agreement. The language used in the respective contract is of the utmost importance and should clearly define what the investors and sellers expect out of the deal.
There are a couple of caveats to keep in mind when considering using sales contracts for real estate:
Contract prohibitions: Make sure the contract you have with the property seller does not have prohibitions for future assignments. This can create serious issues down the road. Make sure the contract is drafted by a lawyer that specializes in real estate assignment contract law.
Property-specific prohibitions: HUD homes (property obtained by the Department of Housing and Urban Development), real estate owned or REOs (foreclosed-upon property), and listed properties are not open to assignment contracts. REO properties, for example, have a 90-day period before being allowed to be resold.
What Is An Assignment Fee In Real Estate?
An assignment fee in real estate is the money a wholesaler can expect to receive from an end buyer when they sell them their rights to buy the subject property. In other words, the assignment fee serves as the monetary compensation awarded to the wholesaler for connecting the original seller with the end buyer.
Again, any contract used to disclose a wholesale deal should be completely transparent, and including the assignment fee is no exception. The terms of how an investor will be paid upon assigning a contract should, nonetheless, be spelled out in the contract itself.
The standard assignment fee is $5,000. However, every deal is different. Buyers differ on their needs and criteria for spending their money (e.g., rehabbing vs. buy-and-hold buyers). As with any negotiations , proper information is vital. Take the time to find out how much the property would realistically cost before and after repairs. Then, add your preferred assignment fee on top of it.
Traditionally, investors will receive a deposit when they sign the Assignment of Real Estate Purchase and Sale Agreement . The rest of the assignment fee will be paid out upon the deal closing.
Assignment Contract Vs Double Close
The real estate assignment contract strategy is just one of the two methods investors may use to wholesale a deal. In addition to assigning contracts, investors may also choose to double close. While both strategies are essentially variations of a wholesale deal, several differences must be noted.
A double closing, otherwise known as a back-to-back closing, will have investors actually purchase the home. However, instead of holding onto it, they will immediately sell the asset without rehabbing it. Double closings aren’t as traditional as fast as contract assignment, but they can be in the right situation. Double closings can also take as long as a few weeks. In the end, double closings aren’t all that different from a traditional buy and sell; they transpire over a meeter of weeks instead of months.
Assignment real estate strategies are usually the first option investors will want to consider, as they are slightly easier and less involved. That said, real estate assignment contract methods aren’t necessarily better; they are just different. The wholesale strategy an investor chooses is entirely dependent on their situation. For example, if a buyer cannot line up funding fast enough, they may need to initiate a double closing because they don’t have the capital to pay the acquisition costs and assignment fee. Meanwhile, select institutional lenders incorporate language against lending money in an assignment of contract scenario. Therefore, any subsequent wholesale will need to be an assignment of contract.
Double closings and contract assignments are simply two means of obtaining the same end. Neither is better than the other; they are meant to be used in different scenarios.
Flipping Real Estate Contracts
Those unfamiliar with the real estate contract assignment concept may know it as something else: flipping real estate contracts; if for nothing else, the two are one-in-the-same. Flipping real estate contracts is simply another way to refer to assigning a contract.
Is An Assignment Of Contract Legal?
Yes, an assignment of contract is legal when executed correctly. Wholesalers must follow local laws regulating the language of contracts, as some jurisdictions have more regulations than others. It is also becoming increasingly common to assign contracts to a legal entity or LLC rather than an individual, to prevent objections from the bank. Note that you will need written consent from all parties listed on the contract, and there cannot be any clauses present that violate the law. If you have any questions about the specific language to include in a contract, it’s always a good idea to consult a qualified real estate attorney.
When Will Assignments Not Be Enforced?
In certain cases, an assignment of contract will not be enforced. Most notably, if the contract violates the law or any local regulations it cannot be enforced. This is why it is always encouraged to understand real estate laws and policy as soon as you enter the industry. Further, working with a qualified attorney when crafting contracts can be beneficial.
It may seem obvious, but assignment contracts will not be enforced if the language is used incorrectly. If the language in a contract contradicts itself, or if the contract is not legally binding it cannot be enforced. Essentially if there is any anti-assignment language, this can void the contract. Finally, if the assignment violates what is included under the contract, for example by devaluing the item, the contract will likely not be enforced.
How To Assign A Real Estate Contract
A wholesaling investment strategy that utilizes assignment contracts has many advantages, one of them being a low barrier-to-entry for investors. However, despite its inherent profitability, there are a lot of investors that underestimate the process. While probably the easiest exit strategy in all of real estate investing, there are a number of steps that must be taken to ensure a timely and profitable contract assignment, not the least of which include:
Find the right property
Acquire a real estate contract template
Submit the contract
Assign the contract
Collect the fee
1. Find The Right Property
You need to prune your leads, whether from newspaper ads, online marketing, or direct mail marketing. Remember, you aren’t just looking for any seller: you need a motivated seller who will sell their property at a price that works with your investing strategy.
The difference between a regular seller and a motivated seller is the latter’s sense of urgency. A motivated seller wants their property sold now. Pick a seller who wants to be rid of their property in the quickest time possible. It could be because they’re moving out of state, or they want to buy another house in a different area ASAP. Or, they don’t want to live in that house anymore for personal reasons. The key is to know their motivation for selling and determine if that intent is enough to sell immediately.
With a better idea of who to buy from, wholesalers will have an easier time exercising one of several marketing strategies:
Real Estate Meetings
2. Acquire A Real Estate Contract Template
Real estate assignment contract templates are readily available online. Although it’s tempting to go the DIY route, it’s generally advisable to let a lawyer see it first. This way, you will have the comfort of knowing you are doing it right, and that you have counsel in case of any legal problems along the way.
One of the things proper wholesale real estate contracts add is the phrase “and/or assigns” next to your name. This clause will give you the authority to sell the property or assign the property to another buyer.
You do need to disclose this to the seller and explain the clause if needed. Assure them that they will still get the amount you both agreed upon, but it gives you deal flexibility down the road.
3. Submit The Contract
Depending on your state’s laws, you need to submit your real estate assignment contract to a title company, or a closing attorney, for a title search. These are independent parties that look into the history of a property, seeing that there are no liens attached to the title. They then sign off on the validity of the contract.
4. Assign The Contract
Finding your buyer, similar to finding a seller, requires proper segmentation. When searching for buyers, investors should exercise several avenues, including online marketing, listing websites, or networking groups. In the real estate industry, this process is called building a buyer’s list, and it is a crucial step to finding success in assigning contracts.
Once you have found a buyer (hopefully from your ever-growing buyer’s list), ensure your contract includes language that covers earnest money to be paid upfront. This grants you protection against a possible breach of contract. This also assures you that you will profit, whether the transaction closes or not, as earnest money is non-refundable. How much it is depends on you, as long as it is properly justified.
5. Collect The Fee
Your profit from a deal of this kind comes from both your assignment fee, as well as the difference between the agreed-upon value and how much you sell it to the buyer. If you and the seller decide you will buy the property for $75,000 and sell it for $80,000 to the buyer, you profit $5,000. The deal is closed once the buyer pays the full $80,000.
Assignment of Contract Pros
For many investors, the most attractive benefit of an assignment of contract is the ability to profit without ever purchasing a property. This is often what attracts people to start wholesaling, as it allows many to learn the ropes of real estate with relatively low stakes. An assignment fee can either be determined as a percentage of the purchase price or as a set amount determined by the wholesaler. A standard fee is around $5,000 per contract.
The profit potential is not the only positive associated with an assignment of contract. Investors also benefit from not being added to the title chain, which can greatly reduce the costs and timeline associated with a deal. This benefit can even transfer to the seller and end buyer, as they get to avoid paying a real estate agent fee by opting for an assignment of contract. Compared to a double close (another popular wholesaling strategy), investors can avoid two sets of closing costs. All of these pros can positively impact an investor’s bottom line, making this a highly desirable exit strategy.
Assignment of Contract Cons
Although there are numerous perks to an assignment of contract, there are a few downsides to be aware of before searching for your first wholesale deal. Namely, working with buyers and sellers who may not be familiar with wholesaling can be challenging. Investors need to be prepared to familiarize newcomers with the process and be ready to answer any questions. Occasionally, sellers will purposely not accept an assignment of contract situation. Investors should occasionally expect this, as to not get discouraged.
Another obstacle wholesalers may face when working with an assignment of contract is in cases where the end buyer wants to back out. This can happen if the buyer is not comfortable paying the assignment fee, or if they don’t have owner’s rights until the contract is fully assigned. The best way to protect yourself from situations like this is to form a reliable buyer’s list and be upfront with all of the information. It is always recommended to develop a solid contract as well.
Know that not all properties can be wholesaled, for example HUD houses. In these cases, there are often anti-assigned clauses preventing wholesalers from getting involved. Make sure you know how to identify these properties so you don’t waste your time. Keep in mind that while there are cons to this real estate exit strategy, the right preparation can help investors avoid any big challenges.
Assignment of Contract Template
If you decide to pursue a career wholesaling real estate, then you’ll want the tools that will make your life as easy as possible. The good news is that there are plenty of real estate tools and templates at your disposal so that you don’t have to reinvent the wheel! For instance, here is an assignment of contract template that you can use when you strike your first deal.
As with any part of the real estate investing trade, no single aspect will lead to success. However, understanding how a real estate assignment of contract works is vital for this business. When you comprehend the many layers of how contracts are assigned—and how wholesaling works from beginning to end—you’ll be a more informed, educated, and successful investor.
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Real Estate Contracts
What is an assignment contract.
Assignment contracts are a vehicle used by real estate investors to transfer one party’s rights and obligations under an existing real estate contract to another party. Assignment contracts don’t involve transferring or selling the property directly like a purchase agreement. Instead, the buyer under the original purchase agreement (the assignor) assigns their rights and obligations under the purchase agreement to the assignee, sometimes for a profit. The assignee then becomes the buyer under the original real estate contract.
When Is an Assignment Contract Used?
In one scenario, a type of real estate investor called a wholesaler contracts with the current owner(s) of a distressed property that may be unsellable to average homebuyers. The wholesaler creates a purchase agreement with that owner to buy their property. The wholesaler then finds an end buyer who wants to take possession of the property. The assignment contract is then created to transfer the wholesaler’s rights and obligations under the original purchase agreement to the end buyer.
Elements of an Assignment Contract
- Assignor : the real estate wholesaler. This is the person who is the buyer under the original purchase agreement and who is selling or transferring their rights and obligations under that contract.
- Assignee : the end buyer. This is the person who is purchasing or receiving the assignor’s rights and obligations under the original purchase agreement and who would ultimately pay the purchase price (plus any assignment fee agreed to in the assignment contract) and take possession of the property.
- Description or identification of contract being assigned: a description of the original purchase agreement being assigned. Oftentimes, the assignment contract will also attach the original purchase agreement or state that it has been provided to the assignee.
- Subject property information: the property address, legal description, or property identification number/parcel number for the property that is the subject of the original purchase agreement.
- Assignment earnest money amount: like with other types of real estate contracts, earnest money shows the assignee is a serious buyer. The money helps ensure that the assignee won’t back out of the deal for frivolous reasons.
- Assignee’s purchase amount: the amount the end buyer agrees to pay that fulfills or exceeds the original purchase agreement amount.
- Assignment fee: the amount of money the assignor will make for finding an end buyer. The assignment fee should be clearly set forth in the assignment contract.
- Name of the company holding escrow : the assignment contract will designate what company is holding escrow. This escrow company should match the escrow company listed in the original purchase agreement or you will need an amendment to the original purchase agreement or, in states where it is permissible, a split escrow.
- Closing date: the date by which the transaction should be finalized. This should correspond to the original purchase agreement’s closing date. If a different date is used, an amendment to the original purchase agreement may be required.
- How assignment earnest money is handled : should one party cancel the contract or fail to meet the contractual obligations, the earnest money may either be forfeited by the assignee or returned. In instances of a dispute between the parties, the third party holding escrow may release the assignment earnest money pursuant to the terms and conditions of the assignment contract.
Writing a comprehensive assignment contract is a vital part of several real estate investing strategies. If you’re new to creating these kinds of contracts, be sure to get some legal advice before moving forward. Once you have a solid assignment contract template in place, transactions using this contracting tool will run more smoothly.
* The information provided on this site does not, and is not intended to, constitute legal, financial, tax, or real estate advice. Please consult your expert for advice in those areas. All content is for general informational purposes only and is not intended to provide a complete description of the subject matter. Although Blueprint provides information it believes to be accurate, Blueprint makes no representations or warranties about the accuracy or completeness of the information contained on this site. Specific processes will vary based on applicable law. The title and closing process will be handled by a third-party attorney to the extent required by law. Product offerings vary by jurisdiction and are not available or solicited in any state where we are not licensed.
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Assignment of Contract
Jump to section, need help with a contract agreement, what is an assignment of contract.
An assignment of contract is a legal term that describes the process that occurs when the original party (assignor) transfers their rights and obligations under their contract to a third party (assignee). When an assignment of contract happens, the original party is relieved of their contractual duties, and their role is replaced by the approved incoming party.
How Does Assignment of Contract Work?
An assignment of contract is simpler than you might think.
The process starts with an existing contract party who wishes to transfer their contractual obligations to a new party.
When this occurs, the existing contract party must first confirm that an assignment of contract is permissible under the legally binding agreement . Some contracts prohibit assignments of contract altogether, and some require the other parties of the agreement to agree to the transfer. However, the general rule is that contracts are freely assignable unless there is an explicit provision that says otherwise.
In other cases, some contracts allow an assignment of contract without any formal notification to other contract parties. If this is the case, once the existing contract party decides to reassign his duties, he must create a “Letter of Assignment ” to notify any other contract signers of the change.
The Letter of Assignment must include details about who is to take over the contractual obligations of the exiting party and when the transfer will take place. If the assignment is valid, the assignor is not required to obtain the consent or signature of the other parties to the original contract for the valid assignment to take place.
Check out this article to learn more about how assigning a contract works.
Contract Assignment Examples
Contract assignments are great tools for contract parties to use when they wish to transfer their commitments to a third party. Here are some examples of contract assignments to help you better understand them:
Anna signs a contract with a local trash company that entitles her to have her trash picked up twice a week. A year later, the trash company transferred her contract to a new trash service provider. This contract assignment effectively makes Anna’s contract now with the new service provider.
Hasina enters a contract with a national phone company for cell phone service. The company goes into bankruptcy and needs to close its doors but decides to transfer all current contracts to another provider who agrees to honor the same rates and level of service. The contract assignment is completed, and Hasina now has a contract with the new phone company as a result.
Here is an article where you can find out more about contract assignments.
Assignment of Contract in Real Estate
Assignment of contract is also used in real estate to make money without going the well-known routes of buying and flipping houses. When real estate LLC investors use an assignment of contract, they can make money off properties without ever actually buying them by instead opting to transfer real estate contracts .
This process is called real estate wholesaling.
Real Estate Wholesaling
Real estate wholesaling consists of locating deals on houses that you don’t plan to buy but instead plan to enter a contract to reassign the house to another buyer and pocket the profit.
The process is simple: real estate wholesalers negotiate purchase contracts with sellers. Then, they present these contracts to buyers who pay them an assignment fee for transferring the contract.
This process works because a real estate purchase agreement does not come with the obligation to buy a property. Instead, it sets forth certain purchasing parameters that must be fulfilled by the buyer of the property. In a nutshell, whoever signs the purchase contract has the right to buy the property, but those rights can usually be transferred by means of an assignment of contract.
This means that as long as the buyer who’s involved in the assignment of contract agrees with the purchasing terms, they can legally take over the contract.
But how do real estate wholesalers find these properties?
It is easier than you might think. Here are a few examples of ways that wholesalers find cheap houses to turn a profit on:
- Direct mailers
- Place newspaper ads
- Make posts in online forums
- Social media posts
The key to finding the perfect home for an assignment of contract is to locate sellers that are looking to get rid of their properties quickly. This might be a family who is looking to relocate for a job opportunity or someone who needs to make repairs on a home but can’t afford it. Either way, the quicker the wholesaler can close the deal, the better.
Once a property is located, wholesalers immediately go to work getting the details ironed out about how the sale will work. Transparency is key when it comes to wholesaling. This means that when a wholesaler intends to use an assignment of contract to transfer the rights to another person, they are always upfront about during the preliminary phases of the sale.
In addition to this practice just being good business, it makes sure the process goes as smoothly as possible later down the line. Wholesalers are clear in their intent and make sure buyers know that the contract could be transferred to another buyer before the closing date arrives.
After their offer is accepted and warranties are determined, wholesalers move to complete a title search . Title searches ensure that sellers have the right to enter into a purchase agreement on the property. They do this by searching for any outstanding tax payments, liens , or other roadblocks that could prevent the sale from going through.
Wholesalers also often work with experienced real estate lawyers who ensure that all of the legal paperwork is forthcoming and will stand up in court. Lawyers can also assist in the contract negotiation process if needed but often don’t come in until the final stages.
If the title search comes back clear and the real estate lawyer gives the green light, the wholesaler will immediately move to locate an entity to transfer the rights to buy.
One of the most attractive advantages of real estate wholesaling is that very little money is needed to get started. The process of finding a seller, negotiating a price, and performing a title search is an extremely cheap process that almost anyone can do.
On the other hand, it is not always a positive experience. It can be hard for wholesalers to find sellers who will agree to sell their homes for less than the market value. Even when they do, there is always a chance that the transferred buyer will back out of the sale, which leaves wholesalers obligated to either purchase the property themselves or scramble to find a new person to complete an assignment of contract with.
Learn more about assignment of contract in real estate by checking out this article .
Who Handles Assignment of Contract?
The best person to handle an assignment of contract is an attorney. Since these are detailed legal documents that deal with thousands of dollars, it is never a bad idea to have a professional on your side. If you need help with an assignment of contract or signing a business contract , post a project on ContractsCounsel. There, you can connect with attorneys who know everything there is to know about assignment of contract amendment and can walk you through the whole process.
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Assigning Real Estate Contracts: Everything You Need to Know
Assigning real estate contracts refers to a method of earning money from buying and selling real estate. You find a seller who is eager to sell their property at a price that is far below its market value. 3 min read
Updated July 10, 2020:
Assigning real estate contracts refers to a method of earning money from buying and selling real estate. You find a seller who is eager to sell their property at a price that is far below its market value. Then, you find a buyer willing to pay a higher price for it.
How Contract Assignment Works
The first thing you need to do for contract assignment is to find a motivated seller. This is a person who owns a property, and for some reason, needs to sell in a hurry. This is generally because of a problem they are having, such as needing to move to a new home quickly. You'll need to be able to tell the difference between this sort of seller and someone who isn't in so much of a hurry to sell, and perhaps just wants to know what the property is worth.
You can find motivated sellers by placing ads in the newspaper, marketing on the internet, or sending direct mail. A combination of strategies works best.
The next thing you need to do is to obtain an assignment contract document. You can find templates on the web, but it's a good idea to have an attorney look it over before signing anything. That way, you will know that everything is completely legal. You will also be able to use that attorney if things don't work out as planned.
After the contract is signed, you submit it to a title company or an attorney who handles real estate closings . They will then do a title search. This ensures there are no existing liens against the property. This step is crucial because you do not want to buy a property that has a problem with the title. The title company is objective and independent and therefore makes sure everything is fair and legal.
At this point, you may search for a buyer. This will require more marketing strategies and can be a difficult process, but when you do find a buyer, you can move on to the next step - closing on the property. You'll need to collect a non-refundable deposit known as “earnest money” to make sure the buyer won't back out. If the buyer does change their mind, you get to keep the earnest money. This amount can be determined by you or the buyer.
Next, you get paid! The amount you receive will cover the amount you agreed to pay the property seller, along with an amount you get to keep in return for finding the buyer and making the transaction happen.
While this process takes place, you should make sure the seller understands how the process works , and that you will make a profit from the transaction. Otherwise, either the seller or buyer may decide they don't like the idea of your profiting from the sale and may back out. Reassure the seller that they are still getting the amount agreed upon for the sale.
Most contract assignments are done for $5,000 profit or less, but you can do it for a higher amount if you choose. If problems arise, it's possible to do a double or simultaneous closing, thereby keeping both parts of the sale separate and anonymous. Some title companies may not agree to do this, so if it becomes an issue, you should discuss it in advance.
Drawbacks of Contract Assignment
Contract assignment, or wholesaling, can be a profitable venture , but there are a few pitfalls to watch out for, such as:
- You cannot make any repairs or renovations to the property because you do not own it at any point.
- You cannot offer any type of financing to the buyer.
- You must get the sale accomplished within a short amount of time before the contract expires.
- The process of closing on the property is detailed and can be complicated.
- You must find a buyer who is willing to pay in cash because it's hard to find a lender who will approve a mortgage for an assigned contract.
You also need to check the laws in your state, because in some states it is not legal to market a property that you don't own.
If you need more information or help with assigning real estate contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.
Hire the top business lawyers and save up to 60% on legal fees
Content Approved by UpCounsel
- Property Contracts
- Sample Real Estate Contracts
- Land Sale Contracts
- Commercial Real Estate Contract Provisions
- Deed Contract Agreement
- Assignment Of Contracts
- Define Subject to Contract
- As Is Sales Contract
- Bill of Sale Land Contract
- Extension Addendum to Contract
Assignment (Real Estate) Definition
Investing Strategy , Jargon, Legal, Terminology, Title
Table of Contents
- What Is an Assignment?
- What is an Assignment in Real Estate?
- What Does it Mean to Assign a Contract in Real Estate?
- How Does a Contract Assignment Work?
- Pros and Cons of Assigning Contracts
REtipster does not provide legal advice. The information in this article can be impacted by many unique variables. Always consult with a qualified legal professional before taking action.
In real estate terms, an assignment of contract is a way to profit from a real estate transaction without ever becoming the owner of the property.
The assignment method is a standard tool in a real estate wholesaler’s kit and lowers the barrier to entry for a real estate investor because it does not require the wholesaler to use much (or any) of their own money to profit from a deal.
Contract assignment is a common wholesaling strategy where the seller and the wholesaler (i.e. – middleman) sign an agreement giving the wholesaler the sole right to buy a property at a specified price, within a certain period of time.
The wholesaler then finds another buyer and assigns the contract to him or her. The wholesaler isn’t selling the property to the end buyer because the wholesaler never takes title to the property during the process. The wholesaler is simply selling the contract , which gives the end buyer the right to buy the property in accordance with the original purchase agreement.
In doing this, the wholesaler can earn an assignment fee for putting the deal together.
Some states require a real estate wholesaler to be a licensed real estate agent, and the assignment strategy can’t be used for HUD homes and REOs.
The process for assigning a contract follows some common steps.
Find the Right Property
This is where the heavy lifting happens—investors use many different marketing tactics to find leads and identify properties that work with their investing strategy. Typically, for wholesaling to work, a wholesaler needs a motivated seller who wants to unload the property as soon as possible. That sense of urgency works to the wholesaler’s advantage in negotiating a price that will be attractive to buyers and cover their assignment fee.
RELATED: What is “Driving for Dollars” and How Does It Work?
Get a Purchase Agreement Signed
Once a motivated seller has agreed to sell their property at a discounted price, they will sign a purchase agreement with the wholesaler. The purchase agreement needs to contain language that clearly allows the buyer to assign their rights in the agreement to a third party . Most standard purchase agreements do not include this language by default, so if the buyer plans to sell/assign the contract, they need to make sure this language is included (note: talk with an attorney to make sure the language included and explained correctly).
RELATED: Wholesaling Made Simple! A Comprehensive Guide to Assigning Contracts
Communicate, Communicate, Communicate
From the very beginning, it’s important for a wholesaler to communicate with their seller about their intent to assign the contract. Many sellers are not familiar with the assignment process, so if the role of the buyer is going to change along the way, the seller needs to be aware of this at or before the time they sign the original purchase agreement .
Find an End Buyer
This is the other half of a wholesaler’s job – marketing to find buyers. Once a buyer has been found, the wholesaler can assign the contract to the new party and work with both the original seller and the end buyer to schedule a closing date.
The assignment is done through a simple “Assignment Agreement” and it allows the new buyer to step into the wholesaler’s shoes as the buyer in the original contract.
While this document technically replaces the wholesaler with the new end buyer, the wholesaler doesn’t get paid until the deal is closed.
Most assignment contracts include language for a nonrefundable deposit from the end buyer, which protects the wholesaler in case the buyer backs out. Although it’s possible to download assignment contract templates online, this is one situation where most experts recommend having your contracts reviewed by an attorney. The assignment wording has to be precise and in accordance with your state laws; having an attorney review your contract protects you against any issues down the road.
Close the Transaction, Assign the Contract & Collect the Assignment Fee
Wholesalers get paid once the end buyer closes the deal. The assignment fee can be a flat amount, a percentage of the purchase price or the difference between the original purchase price and the end buyer’s purchase price.
With an assignment transaction, the end buyer will see precisely how much the wholesaler is getting paid because the end buyer has to sign the closing statement (which states the purchase price from the seller) and the Assignment Agreement (which clearly states the assignment fee being paid to the wholesaler).
If the assignment fee is a reasonable amount relative to the purchase price, most serious investors won’t have any qualms about paying this. If, however, the assignment fee is very large relative to the original purchase price (e.g. – if the original seller agreed to sell their property for $10,000, the wholesaler is collecting an assignment fee of $20,000, and the property is worth $50,000), some end buyers may take issue with this.
In cases where the wholesaler has a substantially higher profit margin, a double closing or a traditional closing is a safer way to close a wholesale transaction. When there are two separate closings taking place, the seller and buyer are not able to see the numbers and overall profit margin being made by the wholesaler between the two transactions.
According to UpCounsel, most contract assignments are done for about $5,000, although depending on the property and the market, it could be higher or lower.
Assigning contracts is a way to lower the barrier to entry for many new real estate investors; because they don’t need to put up their own money to buy a property or assume any risk in financing a deal.
The wholesaler isn’t part of the title chain, which streamlines the process and avoids the hassle of closing two times. Compared to the double-close strategy, assignment contracts require less paperwork and are usually less costly (because there is only one closing occurring, rather than two separate transactions).
On the downside, the wholesaler has to sell the property as-is, because they don’t own it at any point and they cannot make repairs or renovations to make the property look more attractive to a potential buyer. Financing may be much more difficult for the end buyer because many mortgage lenders won’t work with assigned contracts. Purchase Agreements also have expiration dates, which means the wholesaler has a limited window of time to find an end buyer and get the deal done.
Being successful with assignment contracts usually comes down to excellent marketing, networking, and communication between all parties involved. It’s all about developing strategies to find the right properties and having a solid network of investors you can assign them to quickly.
It’s also critical to be aware of any applicable laws in the jurisdiction where the wholesaler is working and holding any licenses required for these kinds of real estate transactions.
Double closing, wholesaling (real estate wholesaling), transactional funding.
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Confused about Contract Assignments? We’ve got everything you need to know
At JOHNS&CO we have been one of the most active players in contract assignments since we first opened our doors in 2013 – a key strength being our ability to call upon our 100+ staff and their significant experience in both the New Homes/Off-Plan & traditional High Street agency markets. As leading experts in this field, successfully completing over 1000 assignments, we have the benefit of unrivalled expertise & knowhow, where our less experienced counterparts might naively consider these to be another “off-plan” sale – a common & potentially costly underestimation.
So what are contract assignments?
Contract assignment sales (sometimes referred to simply as reassignments ) occur in off-plan developments where the original buyer (the assignor) exercises their right to sell the contract to a new buyer (the assignee). The negotiations relating to this sale, agreeable price & conditions, take place between the assignor and the assignee, not with the developer.
Typically, but not always, assignment sales occur at a time when the developer has sold out a building and there remains strong demand for buyers to purchase pre-completion, which allows the option for them to buy when they might not otherwise have been able to.
In its simplest terms, Client A has agreed to buy an apartment from a developer and has a contract committing to the purchase. Client B can buy that contract (by way of a deed of assignment) from Client A.
What makes this different from buying from the developer directly?
When buying a contract assignment from an individual, you’re purchasing the “benefit” of their original contract, which exists between them and the developer.
On this basis, the original buyer (assignor) will have paid a deposit to the developer (typically 15-30% of the agreed sales price but this can vary) which the new buyer (assignee), agrees to “purchase” from the assignor – which in effect is the transaction. Upon the execution of the deed of assignment, effectively completing the process, the assignee is now the de facto purchaser and will go on to legally complete on the original contract with the developer at a later date, where the remaining balance (70-85%) is settled with them directly.
Assignments can often be more complex than traditional property sales. Therefore, it’s crucial that you have a knowledgeable team on your side from your mortgage broker to solicitor, that can ensure a smooth and pain free transaction. Our proven track record in contract assignment sales means that we are able to overcome issues before they take place and give insightful advice throughout the process.
Joseph Bate, Canary Wharf Sales Manager has been dealing in contract assignments for almost a decade. He comments that ‘Contract reassignments are a niche area of the property market but can be a very valuable tool. Whether you are looking to buy or sell a reassignment it is essential you use experts in the field that can help guide you through the process’.
A frequently underestimated point to note is that the lending market for assignment buyers is smaller than the traditional sales arena. It is worth pressing this point with your mortgage broker or lender in the very early stages of the buying-journey to ensure you don’t waste time, effort & unnecessary cost. We recognised many years ago that providing our clients with trustworthy experts in the financial market was essential, therefore teamed up with Capricorn Financial to support our clients effectively.
Luke Northcott, Senior Advisor at Capricorn Financial comments that “Reassignments are absolutely feasible to get lending on. A few requirements need to be met – namely 20% or more in deposit as an absolute minimal requirement. There’s a small sector of the mortgage market that will lend, so it is always best to speak to one of the team, as we have the experience required to source these funding options. We’ve worked with JOHNS&CO since 2014, and have helped place hundreds of re-assignments, so you can be in no safer hands.
Chris Myers, a Partner at Mayfair law firm Forsters LLP, comments that “ Contract assignments are a very popular mechanism for clients to realise profit ahead of a contractual completion date. Equally, they are a useful tool where personal circumstances have changed during the construction period or buyers want to enter a scheme outside of the developer’s marketing programme. It is imperative though to make sure that you surround yourself with experts who understand this market. This means agents and mortgage experts with experience of the nuances of this market and lawyers who not only appreciate the particular requirements of the paperwork but also the commercial terms and what is required to effect a successful assignment expeditiously. The original purchaser remains “on the hook” until completion of the transaction and so protecting the parties throughout that process is essential; an experienced legal team will be able to put the necessary requirements in place to achieve this”.
How many re-assignments are allowed?
In most cases only one assignment is permitted. However, this does depend on what is specified in the contract itself, the developer in question and timescales until completion.
Can I use Help To Buy? What about Stamp Duty?
Unfortunately Help To Buy is not applicable on contract assignments as this can only be offered by the developer directly.
Due to the current SDLT holiday on properties up to £500,000 (valid until 31 st March 2021), the stamp duty threshold has been increased to £500,000. If this is your first purchase you would pay the lower stamp duty rate, however if you own another property anywhere in the world then you can expect to pay the additional 3% surcharge.
How long will it take to exchange?
This varies hugely, as it does with your more traditional transactions. Generally speaking, assignments are quicker than traditional transactions, usually only taking between 4 – 6 weeks. However, it is worth noting that assignment transactions can be concluded in a matter of days.
Timescales do depend heavily on both parties being as proactive as possible and having a capable agency at the helm. JOHNS&CO have dedicated Sales Coordinators to assist at every stage.
What are ‘uplifts?’
You might have heard the term ‘uplift’ used when discussing assignments. In the simplest terms, this is the premium added (the profit) which the original buyer is seeking to sell their contract.
Developments take a significant amount of time to build, typically 2-4 years, from the time it’s released (when the original buyers agree their purchases and contracts) to collecting the keys on legal completion. This construction period is key, as the world & property market doesn’t stand still. London has a reputation for prices to “double every 10 years”, though likely more modestly in recent decades, so it stands to reason that a price agreed originally may go up during the 2-4 years take to build.
As an example, a 1-bedroom apartment bought originally for £500,000 might carry a “market value” of £550,000 if the local market rises by 10% during the construction timeframe. In this instance the new buyer (assignee) could buy at this price by paying the £50,000 “uplift”, on top of the deposit settlement (% amounts vary as noted previously). See workings below –
Example – Original price £500,000 with 20% deposit paid. New buyer agreeing to buy at £550,000 .
Original deposit = £100,000
Uplift (premium) = £50,000
Therefore £150,000 would be required from the new buyer (assignee) to purchase the contract (complete the assignment). Leaving £400,000 (80% of original price) due to the developer on legal completion.
It should be noted that whilst the contract assignment market is particularly prevalent in strong market conditions, there can be situational circumstances where the original buyers (assignor) may wish to sell their contract at a reduced rate. Again, citing the 2-4 year construction window, there can be changes to people’s personal circumstances where completing on purchasing the property is not possible. These happen in very rare examples and all commitments & obligations contained within the contract between the developer and the original buyer remain in place. Our advice would be that if you are in a position where you are contractually required to complete a purchase buy no longer have the means to do so, speak to the developer or JOHNS&CO to review the options available to you.
We hope that has answered some of the frequently asked questions relating to contract assignments. If you have any questions not covered above, do feel free to contact us using the details here.