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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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Assignment Of Purchase And Sale Agreement
Jump to section, need help with a legal contract, what is an assignment of purchase and sale agreement.
An assignment of purchase and sale agreement is a real estate transaction contract that defines the parties and terms of a real estate purchase. This agreement allows the original purchaser of a property to transfer or assign their rights in the deal to a third party. This agreement is often used in flipping houses.
Assignment of purchase and sale agreements allows the purchaser to take their rights and obligations under a purchase agreement and reassign them to a third party who will take on those responsibilities. Some contracts may have clauses that prohibit assignment or allow it under specific circumstances usually laid out in the agreement.
Common Sections in Assignment Of Purchase And Sale Agreements
Below is a list of common sections included in Assignment Of Purchase And Sale Agreements. These sections are linked to the below sample agreement for you to explore.
Assignment Of Purchase And Sale Agreement Sample
Reference : Security Exchange Commission - Edgar Database, EX-10.1.1 2 d245573dex1011.htm ASSIGNMENT OF PURCHASE AND SALE AGREEMENT , Viewed October 18, 2021, View Source on SEC .
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I have worked in banking, financial technology and technology as a legal and compliance executive who negotiates and drafts contracts, ensures products and services comply with applicable regulations, implements policies and procedures, oversees litigation, and manages corporate governance programs.
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Assignment of Contract – Assignable Contract Basics for Real Estate Investors
What is assignment of contract? Learn about this wholesaling strategy and why assignment agreements are the preferred solution for flipping real estate contracts.
Beginners to investing in real estate and wholesaling must navigate a complex landscape littered with confusing terms and strategies. One of the first concepts to understand before wholesaling is assignment of contract, also known as assignment of agreement or “flipping real estate contracts.”
An assignment contract is the most popular exit strategy for wholesalers, and it isn’t as complicated as it may seem. What does assignment of contract mean? How can it be used to get into wholesaling? Here’s what you need to know.
What Is Assignment of Contract?
How assignment of contract works in real estate wholesaling, what is an assignment fee in real estate, assignment of agreement pros & cons, assignable contract faqs.
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Assignment of real estate purchase and sale agreement, or simply assignment of agreement or contract, is a real estate wholesale strategy that facilitates a sale between the property owner and the end buyer.
This strategy is also known as flipping real estate contracts because that’s essentially how it works:
- The wholesaler finds a property that’s already discounted or represents a great deal and enters into a contract with the seller,
- The contract contains an assignment clause that allows the wholesaler to assign the contract to someone else (if they choose to!), then
- The wholesaler can assign the contract to another party and receive an assignment fee when the transaction closes.
Assignment of contract in real estate is a popular strategy for beginners in real estate investment because it requires very little or even no capital. As long as you can find an interested buyer, you do not need to come up with a large sum of money to buy and then resell the property – you are only selling your right to buy it .
An assignment contract passes along your purchase rights as well as your contract obligations. After the contract assignment, you are no longer involved in the transaction with no right to make claims or responsibilities to get the transaction to closing.
Until you assign contract to someone else, however, you are completely on the hook for all contract responsibilities and rights.
This means that you are in control of the deal until you decide to assign the contract, but if you aren’t able to get someone to take over the contract, you are legally obligated to follow through with the sale .
Assignment of Contract vs Double Closing
Double closing and assignment of agreement are the two main real estate wholesaling exit strategies. Unlike the double closing strategy, an assignment contract does not require the wholesaler to purchase the property.
Assignment of contract is usually the preferred option because it can be completed in hours and does not require you to fund the purchase . Double closings take twice as much work and require a great deal of coordination. They are also illegal in some states.
Ready to see how an assignment contract actually works? Even though it has a low barrier to entry for beginner investors, the challenges of completing an assignment of contract shouldn’t be underestimated. Here are the general steps involved in wholesaling.
Step #1. Find a seller/property
The process begins by finding a property that you think is a good deal or a good investment and entering into a purchase agreement with the seller. Of course, not just any property is suitable for this strategy. You need to find a motivated seller willing to accept an assignment agreement and a price that works with your strategy. Direct mail marketing, online marketing, and checking the county delinquent tax list are just a few possible lead generation strategies you can employ.
Step #2: Enter into an assignable contract
The contract with the seller will be almost the same as a standard purchase agreement except it will contain an assignment clause.
An important element in an assignable purchase contract is “ and/or assigns ” next to your name as the buyer . The term “assigns” is used here as a noun to refer to a potential assignee. This is a basic assignment clause authorizing you to transfer your position and rights in the contract to an assignee if you choose.
The contract must also follow local laws regulating contract language. In some jurisdictions, assignment of contract is not allowed. It’s becoming increasingly common for wholesalers to assign agreements to an LLC instead of an individual. In this case, the LLC would be under contract with the seller. This can potentially bypass lender objections and even anti-assignment clauses for distressed properties. Rather than assigning the contract to someone else, the investor can reassign their interest in the LLC through an “assignment of membership interest.”
Note: even the presence of an assignment clause can make some sellers nervous or unwilling to make a deal . The seller may be picky about whom they want to buy the property, or they may be suspicious or concerned about the concept of assigning a contract to an unknown third party who may or may not be able to complete the sale.
The assignment clause should always be disclosed and explained to the seller. If they are nervous, they can be assured that they will still get the agreed-upon amount.
Step #3. Submit the assignment contract for a title search
Once you are under contract, you must typically submit the contract to a title company to perform the title search. This ensures there are no liens attached to the property.
Step #4. Find an end buyer to assign the contract
Next is the most challenging step: finding a buyer who can fulfill the contract’s original terms including the closing date and purchase price.
Successful wholesalers build buyers lists and employ marketing campaigns, social media, and networking to find a good match for an assignable contract.
Once you locate an end buyer, your contract should include earnest money the buyer must pay upfront. This gives you some protection if the buyer breaches the contract and, potentially, causes you to breach your contract with the seller. With a non-refundable deposit, you can be sure your earnest money to the seller will be covered in a worst-case scenario.
You can see an assignment of contract example here between an assignor and assignee.
Step #5. Receive your assignment fee
The final step is receiving your assignment fee. This fee is your profit from the transaction, and it’s usually paid when the transaction closes.
The assignment fee is how the wholesaler makes money through an assignment contract. This fee is paid by the end buyer when they purchase the right to buy the property as compensation for being connected to the original seller. Assignment contracts should clearly spell out the assignment fee and how it will be paid.
An assignment fee in real estate replaces the broker or Realtor fee in a typical transaction as the assignor or investor is bringing together the seller and end buyer.
The standard real estate assignment fee is $5,000 . However, it varies by transaction and calculating the assignment fee may be higher or lower depending on whether the buyer is buying and holding the property or rehabbing and flipping.
The assignment fee is not always a flat amount. The difference between the agreed-upon price with the seller and the end buyer is the profit you stand to earn as the assignor. If you agreed to purchase the property for $150,000 from the seller and assign the contract to a buyer for $200,000, your assignment fee or profit would be $50,000.
In most cases, an investor receives a deposit when the Assignment of Purchase and Sale Agreement is signed with the rest paid at closing.
Be aware that assignment agreements can have a bad reputation . This is usually the case when the end buyer and seller are unsatisfied, realizing they could have sold higher or bought lower and essentially paid thousands to an investor who never even wanted to buy the property.
Opting for the standard, flat assignment fee is much more readily accepted by sellers and buyers as it’s comparable to a real estate agent’s commission or even much lower and the parties can avoid working with an agent.
Real estate investors enjoy many benefits of an assignment of contract:
- This strategy requires little or no capital which makes it a popular entry to wholesaling as investors learn the ropes.
- Investors are not added to the title chain and never own the property which reduces costs and the amount of time the deal takes.
- An assignment of agreement is easier and faster than double closing which requires two separate closings and two sets of fees and disclosures.
- Wholesaling can be a great tool to expand an investor’s network for future opportunities.
As with most things, there are important drawbacks to consider. Before jumping into wholesaling and flipping real estate contracts, consider the downsides .
- It can be difficult to work with sellers and buyers who are not familiar with wholesaling or assignment agreements.
- Some sellers avoid or decline assignment of contract offers because they are suspicious of the arrangement, think it is too risky, or want to know who they are selling to.
- There is a limited time to find an end buyer. Without a reliable buyer’s list, it can be very challenging to find a viable end buyer before the closing date.
- The end buyer may back out at the last minute. This may happen if they do not have owner’s rights until the contract is assigned or they do not want to pay an assignment fee.
- Not all properties are eligible for wholesaling like HUD and REO properties. There may be anti-assignment clauses or other hurdles. It is possible to get around this by purchasing the property with an LLC which can then be sold, but this is a level of complication that many wholesalers want to avoid.
- Assignors do not have owner’s rights. When the property is under contract, investors cannot make repairs or improvements. This makes it harder to assign a contract for a distressed property in poor condition.
- It can be hard to confirm an end buyer is qualified. The end buyer is responsible for paying the agreed upon price set by the seller and assignor. Many lenders do not handle assignment agreements which usually means turning to all-cash end buyers. Depending on the market, they can be hard to find.
In the worst-case scenario, if a wholesaling deal falls through because the end buyer backs out, the investor or assignor is still responsible for buying the property and must follow through with the purchase agreement. If you do not, you are in breach of contract and lose the earnest money you put down.
To avoid this worst-case scenario, be prepared with a good buyer’s list. You should only put properties under contract that you consider a good deal and you can market to other investors or homeowners. You may be able to get more time by asking for an extension to the assignment of contract while you find another buyer or even turn to other wholesalers to see if they have someone who would be a good fit.
What is the difference between assignor vs assignee?
In an assignment clause, the assignor is the buyer who then assigns the contract to an assignee. The assignee is the end buyer or final buyer who becomes the owner when the transaction closes. After the assignment, contract rights and obligations are transferred from the assignor to the assignee.
What Is an assignable contract?
An assignable contract in real estate is a purchase agreement that allows the buyer to assign their rights and obligations to another party before the contract expires. The assignee then becomes obligated to meet the terms of the contract and, at closing, get title to the property.
Is Assignment of Agreement Legal?
Assignment of contract is legal as long as state regulations are followed and it’s an assignable contract. The terms of your agreement with the seller must allow for the contract to be assumed. To be legal and enforceable, the following general requirements must be met.
- The assignment does not violate state law or public policy. In some states and jurisdictions, contract assignments are prohibited.
- There is no assignment clause prohibiting assignment.
- There is written consent between all parties.
- The property does not have restrictions prohibiting assignment. Some properties have deed restrictions or anti-assignment clauses prohibiting assignment of contract within a specific period of time. This includes HUD properties, short sales, and REO properties which usually prohibit a property from being resold for 90 days. There is potentially a way around these non-assignable contracts using an LLC.
Can a non-assignable contract still be assigned?
Even an non-assignable contract can become an assignable contract in some cases. A common approach is creating an agreement with an LLC or trust as the purchaser. The investor can then assign the entity to someone else because the contractual rights and obligations are the entity’s.
Assignment agreements are not as complicated as they may sound, and they offer an excellent entry into real estate investing without significant capital. A transaction coordinator at Transactly can be an invaluable solution, no matter your volume, to keep your wholesaling business on track and facilitate every step of the transaction to closing – and your assignment fee!
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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.
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- 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
Purchase Contract Assignment Form
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Updated June 22, 2023
A purchase contract assignment is between a holder (assignor) that transfers their interest in buying real estate to someone else (assignee). Before the closing, it is common to assign a purchase contract to a business entity or the person whom the loan or mortgage will be under. It’s also accepted for a contract holder to sell their rights to buy a property for a fixed amount.
Depending on the purchase contract signed between the seller and assignor, the seller may be required to give their consent before the agreement is legally valid.
Table of Contents
- Simple Version
- Advanced Version
- Step 1 – Come to a Verbal Agreement
Step 2 – Share the Purchase Contract
Step 3 – create an assignment, step 4 – attach and close.
- Sample : Purchase Contract
How to Write
Download: PDF , MS Word , OpenDocument
How to Assign a Purchase Contract (4 Steps)
This guide is for assignments when selling a purchase contract to a 3rd party .
Step 1 – Come to a Non-Binding Agreement
The buyer (assignor) in the original purchase contract and the new buyer (assignee) will need to come to an agreement. In most cases, the assignee will offer a fixed amount to buy the contract.
The assignor may need to require the assignee to sign a non-disclosure agreement (NDA) as the details included in the purchase contract are confidential.
After signing the NDA, the assignor should share the purchase contract with the assignee.
After the purchase contract is shared an assignment should be written and signed. If there is a payment as part of the assignment, it should be paid at the time of signing.
If the seller’s consent is required, the assignment will need their signature to be valid.
After the assignment is signed, it should be attached to the original purchase contract. The assignee will be recognized as the buyer and will be required to close on the property in accordance with the terms of the purchase contract.
Sample Purchase Contract
Real estate purchase contract assignment.
I. THE PARTIES. This Real Estate Purchase Contract Assignment Agreement (“Agreement”) is made on [ EFFECTIVE DATE ] (“Effective Date”) by and between:
Assignor : [ ASSIGNOR’S NAME ], (“Assignor”) with a mailing address of [ ADDRESS ], hereby transfer and assign to:
Assignee : [ ASSIGNEE’S NAME ], (“Assignee”) with a mailing address of [ ADDRESS ], that agrees to assume all rights and interest in a purchase contract between the Assignor and:
Seller : [ SELLER’S NAME ], (“Seller”) with a mailing address of [ ADDRESS ], for a purchase contract dated on [ DATE ] (“Assignment”).
The above-referenced Assignor and Assignee may each be referred to as a “Party” and collectively referred to herein as the “Parties.”
II. THE PROPERTY. The Assignment is regarding real property located at the following street address: [ ADDRESS ].
Additional Description: [ ADDITIONAL DESCRIPTION ].
III. TRANSFER. The Parties agree that the Assignor is transferring the Assignment to the Assignee for the following:
☐ – Fixed Payment of $[ AMOUNT ] (“Payment Amount”). The Assignment is to be transferred in exchange for the Assignee paying the Assignor the Payment Amount within [ # ] days of the Effective Date.
☐ – No Payment. The Assignor is transferring the Assignment for no payment or compensation. The Assignee’s consideration shall be recognized as the undertaking of any liabilities or obligations in the Assignment.
☐ – Gift. The Assignor is granting the Assignment as a gift to the Assignee.
☐ – Other. [ DESCRIBE OTHER ]
IV. SELLER APPROVAL. For this Agreement to be in effect: (check one)
☐ – It is REQUIRED for the Seller to approve this Agreement within [ # ] days of the Effective Date. If the Seller does not approve this Agreement or fails to sign, this Agreement, then this Agreement shall be considered void.
☐ – It is NOT REQUIRED for the Seller to approve this Agreement. Upon the execution by both Parties, this Agreement shall be in full force and effect.
V. ASSUMPTION. The Assignee acknowledges and agrees to assume the transfer and ownership of all liabilities, obligations, and claims that currently exist or may in the future regarding the Assignment. As of the Effective Date, the Assignee agrees to comply with all terms, make all payments, and perform all the conditions, covenants, and any other duties as part of the Assignment.
VI. PARTIES’ REPRESENTATIONS. The Assignee acknowledges that they have a full understanding of the Assignment and the terms of this Agreement. The Assignor further warrants that they own the rights transferred in the Assignment and understand the terms of this Agreement. Both Parties agree to provide and complete any obligations under this Agreement or the Assignment.
VII. SEVERABILITY. If any term, covenant, condition, or provision of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the provisions shall remain in full force and effect and shall in no way be affected, impaired, or invalidated.
VIII. GOVERNING LAW. This Agreement shall be governed under the laws located in the State of [ STATE ].
IX. WAIVER. The failure of either Party to enforce any provision of this Agreement shall not be deemed a waiver or limitation of that Party’s right to subsequently enforce and compel strict compliance with every provision of this Agreement.
X. ADDITIONAL TERMS. [ ADDITIONAL TERMS ]
XI. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement between the Parties. No modification or amendment of this Agreement shall be effective unless in writing and signed by both Parties.
Assignor Signature: ____________________________ Date: _____________
Print Name: ____________________________
Assignee Signature: ____________________________ Date: _____________
Seller Signature (if required): _______________________ Date: _____________
Section 1 The Parties
(1) Effective Date For Purchase Contract. The calendar date considered the first day of this document’s effect on the Parties involved must be established in the first section.
(2) Assignor Of Real Estate Interest. The Party who shall release his or her interest on the concerned real estate upon the satisfaction of this agreement’s conditions must be identified with a record of his or her full name and mailing address. If Assignor is a Business Entity then make sure the name recorded is its entire legal name.
(3) Assignee Of Real Estate . The Party that will be able to express a rightful interest or claim on the real estate or real property through this document will need to be named. This will require a record of his or her name and address. Bear in mind, a Business Entity acting as the Assignee must have its legal identity including status suffix (if any) produced.
(4) Seller Of Real Estate. The Property Owner or the Party selling the concerned real estate requires his or her name presented.
(5) Date Of Purchase Contract. Furnish the time and date of the original purchase contract this agreement concerns.
Section 2 The Property
(6) Property Location. The concerned real estate must have its physical address (where it may be visited in person) documented.
(7) Property Description. In addition to the location of the concerned real estate, it is recommended that an adequate description be provided. For instance, define any type of structure on the property (i.e. residential building, office building with parking lot, etc.). Ideally, the property’s legal description can be reported here or attached to this agreement.
Section 3 Transfer
(8) Fixed Payment. The manner by which the Assignor releases his or her interest over the concerned real estate to the Assignee will need to be discussed in this paperwork. If this transfer of interest results from a payment from the Assignee to the Assignor then mark the “Fixed Payment” checkbox (found in the third section). This statement will require the exact “Payment Amount” and the maximum number of days after the Effective Date when this payment must be received from the Assignee in order for it to be on time and in compliance with this agreement.
(9) No Payment. Select the second checkbox if “No Payment” will be required of the Assignee to assume the real estate interest being discussed from the Assignor.
(10) Gift. If this transfer of interest is considered a gift from the Assignor to the Assignee then select the “Gift” checkbox.
(11) Other. There may be other circumstances or conditions the Assignee and Assignor have agreed to fulfill for this assignment to occur. For instance, the release of interest may be dependent on the termination of the Assignee from a shared Business Entity with the Assignor. In any case, if none of the statements made in the third section accurately define the basis for this assignment, select the “Other” checkbox and provide this definition to the space available.
(12) Required Seller Approval. This agreement has thus far dealt with the Assignor and the Assignee. If the Seller of the real estate must approve this assignment then the first statement made in Section IV should be selected and a report the number of days within the effective date of this agreement when such approval must be gained (from the Seller) will be required.
(13) No Seller Approval Requirement. Select the second statement made by Section IV if this agreement may require only the consent of the Assignor and the Assignee to be effective.
(14) Governing Law. Report the state that will hold authority over this assignment and the agreement being developed.
Section 10 Additional Terms
(15) Remaining Agreement Conditions. All the conditions and the terms that the Assignor and Assignee require to be complied with should be contained within this agreement before it is signed. Section X will supply the space for such information to be presented and will allow the title of additional paperwork that will be attached to be included. This area may be left unattended if the information produced thus far represents the full scope of the obligations each Party must live up to for this assignment to proceed to completion.
(16) Assignor Signature And Date. The Assignor making this assignment should sign his or her name and dispense the date this action was completed.
(17) Assignor Printed Name.
(18) Assignee Signature And Date. The Recipient of this assignment, the Assignee, should review this agreement then sign his or her name. The date of the Assignee signature must also be reported at the time of signing.
(19) Assignee Printed Name.
(20) Seller Signature And Date. If it has been indicated that the Seller must provide consent, then he or she must sign this paperwork upon its completion and a thorough review so that this assignment may proceed. His or her signature date will also be required.
(21) Seller Printed Name.
Arizona School of Real Estate and Business
Assignments of Buyer’s Rights Under Purchase Agreements
The legal advisor, june 16, 2014, by michael t. denious.
Often in the course of a real estate transaction, the named buyer under the purchase agreement will seek to assign its rights as buyer to another party, referred to as the assignee. In connection with such assignment, the assignor/buyer transfers any and all rights as buyer under the subject purchase agreement to the assignee, usually in exchange for payment or other consideration given by the assignee to the assignor. As a result, the initial “buyer” is making its profit as of or prior to the closing of the sale, rather than having to take ownership and resell the property to a new buyer. This practice is often referred to as “wholesaling,” and is growing more and more prevalent, including in “short sale” transactions in which the existing mortgage holders agree to accept less than the full amount owed on the mortgage(s) and the seller does not receive any proceeds from the sale (other than those funds paid toward commissions, closing costs and the mortgage(s)).
The general rule under Arizona law is that a buyer’s interest in a real estate purchase agreement is freely assignable, absent restrictions or prohibitions in the underlying purchase agreement to the contrary. Many real estate purchase agreements, especially those drafted in a seller-oriented fashion, will contain such restrictions or prohibitions, such as restrictions against assignments to any other party except for affiliated or related entities, or a flat out prohibition against any assignments without seller’s prior written consent. Many other real estate purchase contract forms, however, including the standard form AAR purchase agreements (including the one used for residential real estate transactions with the “short sale” addendum) contain no such prohibition or restriction.
In the absence of restrictions or prohibitions against assignment in the underlying purchase agreement, and assuming there are no grounds for the seller to object or condition such an assignment, an assignment may be accomplished in as simple as one sentence. The buyer assigns any and all rights, title, and/or interest in the underlying purchase agreement, the escrow, and the underlying real property, to the named assignee. In many cases, however, there may be various reasons, both due to concerns of the buyer/assignor and the new assignee/buyer, that make various additional provisions in an assignment document advisable. What follows is a sample format that addresses various issues that would be of concern to the assignor (original buyer) when assigning the buyer’s rights over to an assignee buyer, including in the context of a “short sale” transaction in which the assignor (original buyer) is a “wholesaler” who seeks to make a profit from the assignment rather than closing on the purchase of the property.
THIS Assignment and Assumption of Buyer’s Rights Under Purchase Contract and Seller’s Consent (“Assignment”) is entered into between ________________, (“Assignor”); and _______________________ (“Assignee”), for Ten Dollars ($10.00) and other valuable consideration, with the consent of the undersigned Seller, and on the following terms and conditions:
1. This Assignment shall be effective as of _________, 2008 (“Assignment Effective Date”).
2. This Assignment pertains to that certain Residential Resale Real Estate Purchase Contract dated as of _____________, and any Addenda or Amendments thereto (hereinafter together the “Purchase Contract”), under which Assignor is Buyer and __________________ are Seller; and under which Buyer has the right to purchase that real property identified as the “Property” therein. The Purchase Contract is being administered pursuant to an escrow (the “Escrow”) established by Assignor and Seller _________________ (the “Escrow”).
3. Assignor hereby nominates Assignee as the substitute “Buyer” under the Purchase Contract. Assignor further assigns to Assignee Assignor’s entire right, title and interest in, to and under the Purchase Contract, the Property and the Escrow.
4. Assignor further assigns to Assignee any of its right, title and interest in or to any and all “Earnest Money” deposited in the Escrow pursuant to the Purchase Contract.
5. Seller acknowledges and agrees that Assignor is not in default under the Purchase Contract, and that the Purchase Contract remains enforceable in accordance with its terms.
6. Assignee hereby accepts the foregoing assignment and agrees to be bound by the terms and conditions of the Purchase Contract and assume the obligations of Buyer under the Purchase Contract.
7. This Assignment shall relieve Assignor of any and all duties, obligations or liabilities under the Purchase Contract.
8. Except as otherwise expressly modified herein, the terms and provisions of the Purchase Contract shall remain in full force and effect.
9. By its signature hereto, Seller consents to the terms of this Assignment, and represents and warrants that to the best of Seller’s knowledge there are no grounds to claim a default of Buyer under the Purchase Contract, and that the Purchase Contract remains enforceable in accordance with its terms as of the Assignment Effective Date.
10. Seller further expressly acknowledges that in connection with this Assignment, Assignor is acting on its own account and not on behalf of Seller, and is receiving separate consideration from Assignee, and therefore is receiving a profit from this transaction. Seller claims no interest in such consideration.
[Signatures of parties to follow]
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deed of assignment vs deed of donation
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Contract of Sale vs. Deed of Donation Which should you choose
Are you transferring property to a loved one? Or is a loved one transferring property to you? What is the best way to transfer property between relatives? In the Philippines, it's typical for parents to transfer properties to their children during their lifetime... either it's a gift as an advanced inheritance. Sometimes they do this so that the properties are already transferred before they pass away.
Our question comes from Ronald P. and he asks, Attorney,
My parents are old and they want to transfer their house and lot to me so that I won't have any more problems when they die. What's the best way for them to transfer the property to me? I heard from my friends that we can choose between a sale or a donation. Which do you think is better?
If you're in a similar position as Ronald? Stick around as we answer his question.
This video is brought to you by "Transferring Land in the Philippines" a workshop that teaches Filipinos the basic modes of transferring land and real properties in the Philippines. It provides the pros and cons of each mode, as well as the steps and procedures so that you eliminate your confusion and successfully navigate the whole process. Transfer with confidence. A transfer without fixers. Go to info.legalguide.ph to learn more.
Welcome to Legal Guide Philippines, where we simplify the law to help you make better choices. I'm Atty. Ramon Ramirez and I are with my partner, Atty. Erwin Zagala. So today we're talking about transferring properties to loved ones. Specifically, what's the best way to transfer property from one person to another, especially if it's to or from a loved one. Now, Atty. Ramon, we've seen a lot of these situations happening where parents will transfer their properties to their kids during their lifetime so that when they die, the kids no longer need to pay taxes. When they do that, what is the best way to transfer the property?
Do we document it as a sale or as a donation? Should we execute a deed of absolute sale or a DOAS, or a deed of donation? Okay, so you're correct Atty. Erwin, this happens a lot. This transfer is usually done by parents as some sort of "tax" planning strategy.
So, why? So that their children no longer need to bear the burden of a tax that we call, right now, we call it the estate tax. which is a tax that needs to be paid when a parent dies, and before the properties can be transferred to the children. Okay, so in effect, it's some sort of "tax planning" because it's already being done by the parents.
What is a sale and what is a donation
But before we answer that question, which is better? A sale or donation? I think I'd want to tackle three things first. So you need to understand these three? Yes. So that we can understand the answer. So we can understand the answer. The first thing we want to tackle is I think it would be helpful to explain what is a sale, and what is a donation and what is the difference? Let's start with the sale.
So under, of course, for lawyers, we have to give the definition under the civil code. Okay, Atty. Ramon, read. I am the Attorney. A sale is an agreement whereby one of the parties obligates himself to deliver something to the other, who on his part, binds himself to pay, therefore for a sum of money or its equivalent. The sale is very clear.
So let's break it down. So basically it's a contract whereby one party, says, okay, I'm going to deliver something to you. Like, let's say, I'm delivering this phone. Delivering something to you. On your part, you also bind yourself to pay for whatever it is that I delivered to you.
I deliver the payment? Yes. A sum of money or its equivalent. So elements of a sale, basically, like any contract, there's the meeting of minds. There's a definite agreement between the parties with respect to the thing, our object. And the cost or price of the thing. Let's say you're selling it, I'm selling it for 100 pesos. That is our cost.
Of course, it's important that both of us have legal capacity. So I think we look like we're of age. So we have legal capacity. We have the ability to enter into legal affairs or contracts. Okay, the second element is we should have an object or a subject matter which is a determinate thing to be sold.
So in our case, it's the cell phone. So it's the determinate thing. We agree that this is the thing that will be the subject of the sale. And last is the Cause or Consideration. As I said, it's 100 pesos. It's a price, certain in money. Very clear. Okay. Now, what is a donation Atty? Erwin?
It's better if we read it. Under Article 725, a donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it. It's also clear. So basically, it's an act of liberality whereby, instead of involving money, I want to, because of my liberality, I will just give you my phone. So in Tagalog, give or bestow. Yes. But you also need to accept it.
It's a requirement. Because even if you give it, what if the other party doesn't want it? I think I saw a pattern, there's two B's. What's the first B attorney, "Buy", the other one is, "Bestow" Yes. Pick between the two Bs. Okay so, the sale buys a donation is bestow. B or B. Alright, so that is the difference of a sale between the sale and donation. I hope that's clear.
Okay, so it's actually even without the legal definitions, I think it's pretty clear in our heads. B or B. All right, now and then. Okay second, the second thing I want to discuss is now, how come you can "choose your own adventure", so to speak. In terms of how to transfer something to your loved one? Usually, people say "Ah land? Which is better? Sale or Donation?"
Why was there such a big fuss between sales or donations?
Now, why did this become popular? Well, well definitely under our laws parties are definitely free to contract in whatever manner they see fit, as long as they don't violate, of course, our laws, good morals, customs, etc. they can contract. But in my experience, the reason for this "choose your own adventure" kind of thing and why it became a thing was because well before the TRAIN law, the tax rates for these two kinds of contracts, the sale, and the donation were quite different.
Ah, there is an effect to the tax Atty. Ramon. So it was kind of a tax-driven decision. So on the one hand, for a sale of property or land or whatever. Usually, this will trigger a tax called the CGT or the Capital Gains Tax Remember that, CGT. That usually just means capital gains tax. Okay, which was 6% of the fair market value or gross selling price whichever is higher.
Just remember 6% as opposed to a donation before the train law, okay? Donations at that time, it was based on graduated rates ranging from 2% to 15%, so it changes. Yes. So depending on the value of what you will donate. So depending on how much you'll donate, it becomes more expensive Yes, you cap it around 15%.
And this is for relatives only. Okay, so it is a different topic when they are not your relatives. Like for example, we are not blood relatives, Even if we are "brotha from another motha" Even in that case, we are treated as strangers.
And at that time, if I donated something to you or you donated something to me, it was a whopping 30%. Yes. It's like they don't want us to give to each other. It's like getting a penalty when you give. Anyway, so that was why it became popular, so back in the day, people, what will they do?
They'll make computations on their Excel spreadsheets and determine which is cheaper. And then on top-line -- sale, bottom line -- donation, and you'll see which one is cheaper. It's like you are pulling from memory, it looks like you've had a lot of experience computing this. And then, of course, that's what you would base. If you're a service provider, you would base your advice on that.
"Guys this is much cheaper." So Atty. Ramon, basically the main consideration before is not the type of transaction, not it's not the B or B... It was because, "How much will I pay for it?" That's why it became a big issue before --- choosing between sale or donation. Which is better? Usually made that computation. The question has finally been answered. So in many ways, it made sense to regular people to do this.
Why? Because these CGTs or capital gains tax and donor's taxes were expenses of ordinary people. People like you and me who probably work jobs work really hard for our living. Why make waste money in our minds, unnecessarily on unnecessary taxes. As supposed to be a business expense, that the business pays. While this one comes from your own pocket. That's why this became rampant and of course, add to that some experts and advisors would advise them to pick and choose the transaction.
Atty. Ramon, you've mentioned before that, when the segment started, you said, "... before the train law" Yes. And now, the TRAIN law is in operation. So my big question is, and I'm that our viewers thought about this, is this still applicable considering the train law is now applicable? Thank you for that question Atty. Erwin. And that's exactly the third thing I want to talk about.
Is this still applicable now?
So the third thing I want to talk about is, is this still applicable now? Well, the answer is no. People have been doing this for years. Obviously, the BIR knows that people do this in sale versus donation. They're not stupid. The government knows this. No, they're not idiots. So they knew that this was being practiced. So they made important changes to our tax laws very recently through the train law.
Now with the new law, with the train law, this practice is no longer as prevalent. Why? Because now the rates are, remember CDT, what was the rate for CDT? six percent CGT then it's based on the fair market value or gross selling price. And then the donor's tax, you have your two to fifteen percent, or sometimes thirty percent. What is it now? Now they're both six percent.
Okay, so it's a pretty big leap. So I think that was a smart thing for the government, it is now equalized. Because it was just driving people to not tell the truth. And I would like to note, it's a very fair percentage. If you noticed, it's on the lower level. Not all of it was standardized at the top. We're at the bottom. Yeah. Thank you, legislators for that. Yeah. So, in fact, the donor's tax, before, you had to make a distinction.
Is it part of the family? Or stranger? Right? Now under new law, there's no such distinction that needs to be made. So that's pretty cool. Atty Ramon, you can now give me a piece of land. It's now possible at six percent. So now when you make a comparative computation, the values of the CGT and donor's tax, should generally not be too different. Okay, so of course, each tax is computed differently, so there may be differences, but generally they're not that different.
Okay, Atty. Ramon, I now understand that they're both the same now if you're gonna look at it from a tax perspective. So going back to our original question, Atty. Ramon, what's better, sale or donation? Okay, I said a lot already. We're gonna go back to the question. Okay. Which is better? I would say that the better option between a sale or donation is the contract that you really intended.
So if you intended to sale, you should execute a document that best reflects the intent of the parties for you guys. Okay. So if the party has intended a sale, then execute a deed of sale. If the party is intended a donation, then execute a deed of donation.
Don't simulate a contract, guys, that's just lying. Don't lie, please. Don't try to trick the others or the government just to save on some pesos. That's bad. We can do better than that. If you execute a deed of sale when you really secretly intended a donation, then that would be called a simulated sale.
And there are legal implications to that. Actually, a simulated sale may be invalidated, or it can be argued to be invalidated because there's really no consideration. For example, hey let's just execute this, let's execute this document as if it's a sale so that we can save on tax, but actually, it's a donation. So in truth, there's really one of the elements of a sale is a consideration.
Now, if there's no consideration, then it could be invalidated. In fact, during the time of BIR Commissioner Jacinto-Henares, it was really something that she wanted to crack down on. So she made it a point to really investigate the capacity to pay off so-called buyers. Okay, so if ever they find that there's no capacity, they assess additional taxes that need to be paid.
That's very useful Atty. Ramon, do you have any other tips for our viewers and listeners? Yes. Okay. So I hope I answered your question. So, sale or donation, the answer is, what's the truth? Go with that. You can never go wrong. It has the same tax rate. Okay. As a bonus tip.
Even this whole concept of transferring land to your kids to avoid paying so much estate taxes, later on, may no longer be such a good idea. Why? Because before, similar to the donor's tax, the estate tax rates would again be based on a graduated scale and the maximum, which would be around twenty percent. Okay. So it's a pretty big chunk that goes to taxes.
So and again, that was before. That's why a lot of people avoided it by "I'm gonna transfer it to my child so that there's no problem" but now under the train law, that is also six percent as well. So it's all the same level now: donation, sale, and estate are six percent. Same rate. Thank you. Thank you, legislators. Okay. And also another reason why I'd say probably doing that kind of tax planning is no longer as good as an idea as it was before is because we will be letting go of deductions.
Because the deductions have changed. Yes. It is much more beneficial now for the heirs. Yeah. So as opposed to CGT also and donor's tax where there's no deduction, the estate tax has deductions. Okay, so it might not be anymore that good of an idea. Again, you want to consult your lawyer on that. Or if you want a very quick intro on estate laws, you might want to consider info.legalguide.ph/estate to learn more. So that's it Atty. Ramon, thank you so much for all of those points.
And to recap guys, we've gone through a lot. First off, we talked about what is a sale and what is a donation. In its simplest terms, the two B's: "buy and bestow", choose which applies. Now, number two is we talked about why was there such a big fuss between sale or donation? Why was it like choose your own adventure for some people? And we went through the history that the tax rate was different before. So to take advantage, people chose the mode which was more beneficial to them.
Third, we talked about does it still apply today? Apparently not with the introduction of the train law, the tax rates are all equal. And as a result, if the tax is the same, have the contract reflect what is your original intent. Yes. And finally, we had a bonus tip. Pre-transferring your properties may no longer be such a good idea. Why? The allowable deductions changed under the estate law, it may be cheaper to pay estate tax instead of transferring it while you are alive.
Now, if you want to learn more about how to transfer land in the Philippines, please go to info.legalguide.ph/land to learn more. And if you want to use to tackle your question in our show, go to legalguide.ph and click the submit topic button. Next, we would like to know what's your biggest takeaway from today's video. Write it down in the comments and let's talk about it. And if you feel we've earned a good rating, please give us a like and a subscribe. It gives us feedback that we're doing a good job and encourages us to make more videos. One last thing guys, trying to trick the government by concealing or simulating contracts just to save on a few thousand, hundreds, or even millions is very often a short-sighted strategy that can definitely bite you in the ass later on.
Many times cheating the government of its taxes by simulating contracts, or whatnot stems from merely a lack of understanding or lack of preparation and lack of planning. We can always educate ourselves, research, discuss, or even consult someone. Now, let's give our country what it's due by paying the right taxes, let's influence our leaders in government by being honest in all our dealings and transactions.
So wasn't that simple? Now go make better choices.
Cebu House Finder
Which is better: to sell or to donate the property.
If you are planning to transfer ownership of land, house-and-lot or condo unit to your loved ones or relatives, this blog is for you. You have two options: to sale or to donate. Which is the better way to transfer property between relatives? Months ago, my cousin asked me which is the better option: Deed of Sale or Deed of Donation. She bought a house-and-lot through the Pag-Ibig Housing Loan Program. She asked her sister to apply for the said loan but she's the one who was paying for everything. After full payment, the title was released under her sister's name as the owner of the said property. Now, she wanted to transfer the property to her name. Which is better, to sale or to donate?
In this blog, let us discuss about the transfer of property through the Deed of Sale and the Deed of Donation. Which is better?
I. DEFINITION OF TERMS
CONTRACT OF SALE
Article 1458 of Republic Act 386, otherwise known as the “Civil Code of the Philippines,” defines a contract of sale as follows:
Article 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.
It is added: “A contract of sale may be absolute or conditional.” (read here for full discussion)
Based on the above definition of sale, there are 3 essential elements:
Consent - when there is a meeting of minds between the seller and the buyer to transfer the property in exchange of the price.
Object - the determinate thing to be delivered.
Cause - the price certain in money or its equivalent.
The 3 essential elements must be present and none is absent. Otherwise, the Contract of Sale is void. The contracting parties must have legal capacity to enter into a contract.
DEED OF DONATION
Article 725 of the “Civil Code of the Philippines" defines a donation as follows:
Article 725. Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it
An act of donation is a legal option for a person to voluntarily transfer his/her ownership over a property to his intended recipient who in turn accepts the donated property. They key words here are "liberality", "gratuitousness" and "acceptance". Unlike in the sale, there is no monetary requirement as the only basis for the gift is donor's love to the donee or the recipient of the donated property. The donee must accept in writing (either in the same document or another document) the said donation during the lifetime of the donor. In writing because the Deed of Donation must be a public instrument (and therefore, the need for notarization) in order to be valid.
Article 749. In order that the donation of an immovable may be valid, it must be made in a public document, specifying therein the property donated and the value of the charges which the donee must satisfy.
II. TAXATION ON SALE AND DONATION OF PROPERTY
The primary reason why people are asking about which is better, the Deed of Sale or Deed of Donation, is the tax payment to government in the transfer of property.
Prior to the TRAIN Law, the computation of Capital Gains Tax and Donor's Tax are quite different.
For the sale of the property, the tax rate is 6% Capital Gains Tax based on Fair Market Value (FMV) or Gross Selling Price (GSP) of the property whichever is higher. For the donation of the property, the tax rate is based on the graduated Donor's Tax Rate ranging from 2% to 15% for relatives and 30% for strangers based on the value of the property.
In other words, the bigger amount of the value of the property, the bigger tax you shall pay to the government. This is, prior to the TRAIN Law, people compute and compare the tax for sale and for donation. Whichever is lower between the Capital Gains Tax and Donor's Tax, the parties agree to execute the necessary document either the Deed of Sale or the Deed of Donation.
Now, under the TRAIN Law (RA 10963), the Donor's Tax Rate is reduced to 6% of the value of the property donated (P250,000 and up). Gifts not more than P250,000 are exempted. Under TRAIN Law, uniform donor's tax rate for relatives and strangers.
What does it mean? It means that the question which is better based on the tax payments is no longer applicable. You don't compute whichever is lower in order to decide which course of action to be pursued: to sale or to donate.
III. ISSUES AND CONCERNS
TAXATION RATES ON TRANSFER OF PROPERTIES
In view of the TRAIN law, people do not need to select between sale or donation based on the concern of "how much do I need to pay?". The taxation rate on the transfer of property is now fixed at 6%. This will encourage people to be honest: either they sell the property or they donate the property. So, in the execution of Deed of Sale or Deed of Donation is now based on the intention of the contracting parties and no longer how much taxes to be paid in the transfer of properties.
SIMULATED SALE IS VOID
Prior to TRAIN Law, parents transfer property ownership to their child through a simulated sale to save on taxes. Again because the taxation rates between the Capital Gains Tax and the Donor's Tax were different then. For parties to save on taxes, they will execute the Deed of Sale instead of the Deed of Donation which is the original intention of the transfer of property. Another case of a simulated sale is when the parents execute the Deed of Sale even if the child has no financial capacity to buy the property or the money comes from the parents themselves. In this case, the Contract to Sale can be voided. Any third party can question the sale, either other sibling or the state (BIR) itself. Under Article 1345 and 1346 of the New Civil Code of the Philippines, a simulated sale is voided:
Article 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement.
Article 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement.
While the 3 essential elements of the contract of sale are present, the cause or consideration can be subjected to verification of the capacity to pay of the buyer. If the buyer has no capacity to pay to buy the property, the contract of sale is void.
The Supreme Court explained the simulated sale in the case of Rebusquillo and Orosco vs. Spouses Gualvez, et al. [G.R. No. 204029, June 4, 2014] as follows:
In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound by it. The main characteristic of an absolute simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties. As a result, an absolutely simulated or fictitious contract is void and the parties may recover from each other what they may have given under the contract.
However, if the parties state a false cause in the contract to conceal their real agreement, the contract is relatively simulated and the parties are still bound by their real agreement. Hence, where the essential requisites of a contract are present and the simulation refers only to the content or terms of the contract, the agreement is absolutely binding and enforceable between the parties and their successors in interest.
This practice is no longer applicable under the TRAIN Law where the tax rate is fixed at 6% in both sale or donation.
ESTATE TAX PLANNING
The idea of transferring property ownership (either sale or donation) from parents to children while the parents are still alive is done as tax planning or saving on the estate taxes. Like the Donor's Tax, the Estate Tax is computed, prior to TRAIN Law, based on the graduated estate tax rates ranging from 5% to 20% as shown in the table below.
So, the contracting parties (parents and child) will compute which of the options (estate tax, sale or donation) is the lowest.
Now, under the TRAIN Law, the Estate Tax Rate is also reduced to 6% of the Value of Net Estate. It means that because the computation of the estate tax of 6% is based on the value of net estate, the tax would be smaller compared to sale or to donation.
The Standard Deductions of medical and funeral expenses, for instance, is now raised up to P5 million pesos (from up to P1 million) and the deduction for Family Home is now raised up to P10 million (from up to 1 million).
There are other issues and concerns that we can discuss on this issue, but the article is already long. I will discuss some issues in a separate article. One thing that I wish to include here the limits of donation compare to sale.
Our discussion here is for educational purposes only. Always consult your lawyer for your specific case to assess your actual case and what proper legal course of action to take.
If you are looking for a residential lot, house-and-lot, or condo unit in Cebu, please contact us at 0920 207 6284 or email [email protected] for FREE assistance.
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Deed of Assignment: Everything You Need to Know
A deed of assignment refers to a legal document that records the transfer of ownership of a real estate property from one party to another. 3 min read
Updated October 8,2020:
A deed of assignment refers to a legal document that records the transfer of ownership of a real estate property from one party to another. It states that a specific piece of property will belong to the assignee and no longer belong to the assignor starting from a specified date. In order to be valid, a deed of assignment must contain certain types of information and meet a number of requirements.
What Is an Assignment?
An assignment is similar to an outright transfer, but it is slightly different. It takes place when one of two parties who have entered into a contract decides to transfer all of his or her rights and obligations to a third party and completely remove himself or herself from the contract.
Also called the assignee, the third party effectively replaces the former contracting party and consequently assumes all of his or her rights and obligations. Unless it is stated in the original contract, both parties to the initial contract are typically required to express approval of an assignment before it can occur. When you sell a piece of property, you are making an assignment of it to the buyer through the paperwork you sign at closing.
What Is a Deed of Assignment?
A deed of assignment refers to a legal document that facilitates the legal transfer of ownership of real estate property. It is an important document that must be securely stored at all times, especially in the case of real estate.
In general, this document can be described as a document that is drafted and signed to promise or guarantee the transfer of ownership of a real estate property on a specified date. In other words, it serves as the evidence of the transfer of ownership of the property, with the stipulation that there is a certain timeframe in which actual ownership will begin.
The deed of assignment is the main document between the seller and buyer that proves ownership in favor of the seller. The party who is transferring his or her rights to the property is known as the “assignor,” while the party who is receiving the rights is called the “assignee.”
A deed of assignment is required in many different situations, the most common of which is the transfer of ownership of a property. For example, a developer of a new house has to sign a deed of assignment with a buyer, stating that the house will belong to him or her on a certain date. Nevertheless, the buyer may want to sell the house to someone else in the future, which will also require the signing of a deed of assignment.
This document is necessary because it serves as a temporary title deed in the event that the actual title deed for the house has not been issued. For every piece of property that will be sold before the issuance of a title deed, a deed of assignment will be required.
Requirements for a Deed of Assignment
In order to be legally enforceable, an absolute sale deed must provide a clear description of the property being transferred, such as its address or other information that distinguishes it from other properties. In addition, it must clearly identify the buyer and seller and state the date when the transfer will become legally effective, the purchase price, and other relevant information.
In today's real estate transactions, contracting parties usually use an ancillary real estate sale contract in an attempt to cram all the required information into a deed. Nonetheless, the information found in the contract must be referenced by the deed.
Information to Include in a Deed of Assignment
- Names of parties to the agreement
- Addresses of the parties and how they are binding on the parties' successors, friends, and other people who represent them in any capacity
- History of the property being transferred, from the time it was first acquired to the time it is about to be sold
- Agreed price of the property
- Size and description of the property
- Promises or covenants the parties will undertake to execute the deed
- Signatures of the parties
- Section for the Governors Consent or Commissioner of Oaths to sign and verify the agreement
If you need help understanding, drafting, or signing a deed of assignment, 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.
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Content Approved by UpCounsel
- Define a Deed
- Contract for Deed California
- Contract for Deed in Texas
- Assignment Law
- Deed Contract Agreement
- Assignment Of Contracts
- Legal Assignment
- Deed vs Agreement
- Assignment Legal Definition
- Contract for a Deed
In real property transactions, a deed of assignment is a legal document that transfers the interest of the owner of that interest to the person to whom it is assigned, the assignee. When ownership is transferred, the deed of assignment show...
A personal representative’s deed is a deed signed by an individual who is looking after the sale of real estate on behalf of another party. The personal representative may be the executor of the estate of a deceased person or the administra...
Free property deed records are available from state offices that are in charge of maintaining such records. According to Public Records Online Searches, offices that are in charge of public records vary by name according to state.
TRANSFER OR ASSIGNMENT OF RIGHTS | THE RISKS OF BUYING AN UNTITLED ... DEED OF SALE vs. DEED OF DONATION | CAPITAL GAINS TAX, DONOR'S TAX
When they do that, what is the best way to transfer the property? Do we document it as a sale or as a donation? Should we execute a deed of
A deed of assignment refers to a legal document that records the transfer of ownership of a real estate property from one party to another.
This means the donation may be factored into the donor's estate to calculate the legitime or compulsory share of other heirs. Considerations: A
A real deed of assignment speaks about one thing: the transfer of interest and legal title on land from the owner called (The Assignor) to
The deed of assignment transfers or "assigns" the seller's rights in the property to another lender. Customer. no the property is in the philippines. img.
The Deed of Assignment is just one of the many legal documents you need to sign if you're buying or selling a property.
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