If you look over a real estate contract, you'd typically find the following information: the names of the buyer and seller; the property details such as its current condition, whether there is any existing damage or other substantial disclosures required; the purchase price; and, the contract validity.
However, you may have also come across a real estate contract wherein, instead of just the name of the buyer, there is the phrase "and/or assigns" that comes after. Such a phrase is known as the assignment clause, and when it is present in a contract, this means that the exclusive right to purchase the property, or the equitable interest, can be transferred from the original party to a new buyer.
In assignment contracts, there are a few terms you need to be familiar with, such as: assignor, assignee, and earnest money.
In assignment contracts, the assignor is the original party who holds the rights to buy the property in the purchase agreement, a.k.a. the original "buyer". Through an assignment contract, they can relinquish their right to the real estate purchase and assign it to another party.
An assignor makes money through an assignment fee, which by common practice is paid by the assignee at the closing date.
An assignee is someone to whom the exclusive right for the real estate purchase is transferred to in accordance with the terms of a purchase agreement. Once the deal is closed and all contractual obligations fulfilled, the assignee receives full ownership rights to the property.
Earnest money signifies that the buyer is serious about going forward with the sale.
It is essentially an advance payment made prior to the closing date to assure the seller that the contractual obligations will be fulfilled, or to reserve the property for the buyer.
Depending on the purchase agreement, an earnest money deposit can be up to 10% of the selling price. If one party breaks the terms of the agreement, this deposit can be refunded or forfeited.
Assignment contracts are just one of the myriad investment opportunities in real estate. With this, you can kickstart your real estate investing journey with little to no capital needed!
Also known as wholesaling real estate or flipping contracts, what you need to do is only acquire the contractual rights and duties to purchase the property for a price and within a time frame that you and the seller agreed upon.
Before signing on the dotted line, make sure the property has no anti assignment clauses. As a matter of public policy, HUD homes cannot be assigned. Real estate owned (REO) properties are another class which cannot be under a contract assignment.
If such an anti assignment clause is present, you need to buy the property yourself first, requiring you to front the money, before you can sell it to the end buyer. In this case, having an all cash buyer lined up is preferred, so you get your capital back plus the profit.
In a way, it guarantees the sale of the property sooner rather than later. How so?
Since the purchase rights isn't exclusive to the original buyer, the seller wouldn't be left in the lurch if, for instance, the buyer is unable to get approved for financing. A new buyer can then swoop in and save the deal.
This is particularly helpful especially if the property is already giving trouble to the owner, as in the case of an impending foreclosure.
On the other hand, if you change your mind and decide to buy and flip the property yourself, you're free to do so. You can do upgrades and sell it down the line for more profit!
Aside from the occasional instance where a seller may ask for earnest money, acquiring the right to buy a property is free, as long as you can uphold the obligations set forth in the purchase agreement.
Motivated sellers are looking to sell their property fast and are operating on a limited time frame. If you're able to quickly find an assignee to transfer the rights to, or better yet, if you have all cash buyers lined up already, the entire process can be completed in days.
For your efforts, you get an assignment fee for facilitating the deal.
To join the ranks of successful real estate investors, you need to know a lot of people.
And here's the good part: since assignment of real estate contracts involve working with both buyers and sellers, you can quickly grow your network enabling you to find and close awesome deals in the future.
Since no realtors are involved in the transaction, no commission fees need to be paid, which can be up to 6% of the purchase price!
The purchase agreement is only valid until the closing date. When you have a time limit, you have your work cut out for you.
Depending on market conditions, local or otherwise, you may have a tough time securing a buyer to assign the contract to before the assignment contract lapses.
When you assign a contract, the fee that you're going to collect is there for all to see. And although you're just doing your job and getting paid for it, the seller may feel ripped off and the buyer may feel taken advantage of since they could have paid less for the property.
Even if you have equitable interest in the property, you don't get to have owner's rights. Which means you cannot renovate, rehabilitate, repair, or do upgrades on the property. If the house has significant damage, you might have difficulty marketing it to potential buyers.
Unless the assignee is a cash buyer, the transaction may fall through if it turns out that your buyer failed to obtain financing. This is going to reflect badly on you as a real estate wholesaler.
The same goes if the owner suddenly changes their mind about selling. You might lose face in front of your buyer.
An assignment fee is the compensation you get for doing the legwork of finding a buyer for a seller, and subsequently, finding a viable property for your end buyer. The fee is usually the difference between the buyer's purchase price and the agreed-upon selling price indicated in the purchase agreement.
For many contracts, assignment fees range from $2,000-$7,000. However, it is not uncommon to see five-figure assignment fees.
Ultimately, there is no limit with how much you can charge for your services, as long as you're able to successfully facilitate the real estate transaction.
In contrast to a contract assignment wherein you transfer the original contract to the end buyer and they deal directly with the seller themselves, in double closing, you buy the property yourself before you sell it to your buyer. In this way, your name appears in the property chain of title.
While a double close shields the profit you're making from scrutiny of both the end buyer and the seller, you must remember that you'll be paying the closing cost twice.
Therefore, it is recommended that double closing be done if:
If neither condition is satisfied, an assignment of contract is preferable since only one closing cost needs to be paid.
Yes. Depending on the tenancy agreement or as long as there is written consent from the landlord, a tenant can transfer their property rights to someone else. The new party will then be the one responsible for paying rent and taking care of the property.
Do note that assigning your lease to someone else doesn't let you off the hook. For example, if the assignee fails to make timely rent payments, or mess up the proper
Entering into a contract assignment can be daunting. If you're a first timer eager to build your reputation, this might be even more scary: you're hungry for your first successful deal! As a wholesaler, you may be plagued with questions and bouts of self-doubt.
What if you don't find an assignee in time?
You might have to buy the property yourself, which begs the question: where will you get the cash to fund the purchase?
Can you even afford the interest rate if you take out a hard money loan?
Fret not! You've come to the right place!
Here at Property Leads, we connect sellers to people like you who might just be the answer to their problems! Our leads aren't ordinary leads--they're motivated seller leads generated by SEO, which means every time someone types "I want to sell my house for cash" or some variation thereof, they go straight to us!
By filling out our form below, we'll call you as soon as possible so you can have the highest converting leads delivered straight to your inbox!
30 N Gould St Ste N
Sheridan, WY 82801
(207) 309-3949
sales@propertyleads.com
