Find Out What Is an Assignment in Real Estate

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Written By Justin McGill

DealBloom aims to share the latest tips and strategies to help realtors, brokers, loan officers, and investors navigate the world of real estate.

If you’re wondering what is an assignment in real estate, wonder no more! This professional blog post will tell you everything you need to know about this important topic. I remember when I was first starting out in the business, one of my colleagues tried to explain it to me and I’m still not sure I understand it completely.

But after reading this blog post, hopefully, you will be able to have a better understanding of what is an assignment in real estate is and how it works.

What Is an Assignment in Real Estate?

An assignment in real estate is the transfer of rights held in a property from one person or entity to another. Click To Tweet

This can be done through a contract or other legal agreement and is often done in order to fulfill obligations outlined in a lease agreement or purchase contract.

What is an Assignment in Real Estate?

In the real estate industry, the assignment of contracts is a method of profiting from a completed deal without owning the property.

An assignment of contract in real estate is a way to profit from a property transaction without taking ownership of the property. This method is often used by wholesalers as it does not require much, if any, of their own money to make a profit.

Real Estate Assignments – What is an Assignment?

An assignment is the transfer of rights or property from one person to another. In the context of real estate, an assignment is the transfer of a property contract from one person to another.

A contract assignment works by having the original buyer assign their rights in the contract to a new buyer. The new buyer then steps into the shoes of the original buyer and assumes all their rights and obligations under the contract.

There are both pros and cons to assigning contracts. Some pros include being able to sell a property without going through the hassle and expense of fixing it up, as well as being able to sell a property in a hot market for more than you paid for it. Some cons include not knowing who your end-buyer will be, as well as having to pay someone to find a buyer for you.

How Does a Contract Assignment Work?

The steps to assign a contact to a deal follow some general guidelines.

Find the Right Property for Your Investment Strategy

This is where investors spend most of their time—finding and identifying the right properties and working with their investment strategy.

If you’re looking to wholesale a property, you’ll need to find a motivated seller who’s interested in unloading the property quickly.

The wholesaler’s advantage in negotiating a price comes from the seller’s urgency to unload the property. This creates an opportunity to agree on a price that is attractive to buyers and also covers the wholesaler’s assignment fee.

Want to learn more about “driving for dollars”? Check out this article!

How to Get a Purchase Agreement Signed

Once a motivated homeowner agrees to sell you their property at a discount, they will sign a contract with the real estate investor.

The purchase contract should contain language that allows the purchaser to legally assign their rights under that contract with a third party.

If you’re planning to sell or assign your purchase agreement, make sure to include language that covers this in the agreement. It’s important to consult with an attorney to ensure that the language is included and explained correctly.

Want to learn more about wholesaling and assigning contracts? Check out our comprehensive guide!

Communicate, Communicate, Communicate

From the get-go, it’s key for a wholesaler to keep their seller in the loop regarding their plans to assign the contract.

When assigning a contract, it’s important for buyers to communicate with their sellers about their intentions from the beginning. Sellers are often unfamiliar with the process of assignment, so it’s important that they know about it before they sign off on the original contract.

Find an End Buyer – A Wholesaler’s Job

The other half of a wholesale real estate agent’s job is finding and assigning contracts to potential buyers. Once a contract has been assigned, the buyer and seller can schedule a closing.

The Assignment of Contract allows a new party to take over the original agreement.

While the new model replaces the wholesaler with the end customer, the distributor doesn’t get their cut until the customer has successfully purchased the product.

If you’re looking to assign your contract to an end buyer, it’s important to include a non-refundable deposit in the contract. This will protect you in case the buyer backs out of the deal.

While you can download templates for sales agreements, it’s generally a good idea to have yours looked over by a lawyer.

Having a lawyer look over your contracts is always a good idea, and even more so when it involves something as important as an assignment.

Close the Transaction, Assign the Contract & Collect the Assignment Fee

The wholesale fee is a fee that wholesalers charge to home sellers. The fees can be a flat rate, a percentage of the purchase price, or based on the difference between the two. The fees are sometimes paid even if the option to buy is expired.

The assignment agreement will state the total amount of money that will be paid to both the wholesale lender and the assignment company. The borrower will be aware of this figure and will be responsible for paying it.

If the fee you pay to assign the contract is reasonable relative to the price you paid, most buyers won’t mind. However, if the contract is assigned for a very large sum, most sellers will balk.

if the seller agreed to sell it for $10,000, the wholesaler is charging $20,000 for assigning the contract, and the end buyer is paying $50,000, some investors may be wary of this.

When the wholesaler has a significantly higher profit margin, it’s safer to use a double closing or traditional closing. This way, the seller and buyer can’t see the overall profit margin being made by the wholesaler.

When there are separate transactions happening at the same time, the wholesale broker is unable to show the numbers and the overall profit being made by the buyer and seller.

Most contract assignments are typically done for around $5,000. However, the amount can differ based on the property and market conditions.

Why Would Someone Want to Sell Their Condo on Assignment?

Pre-sales happen long before a unit is purchased. The buyer has to wait years until their unit is built.

And with this delay, buyers’ lives change – they move, get new jobs, have kids, and so on. What worked in the past for a buyer may no longer be the case at the close.

Another reason for selling on commission is financial.

If the person who originally bought the unit can’t or doesn’t want to complete the sale, then assigning the contract to another party can be a good way to profit.what is an assignment in real estate

Sometimes, when a buyer signs a contract for a new home, there is a period of time between when the buyer can occupy the home and when the final closing date occurs.

It’s not uncommon that a buyer’s situation may change during the in-between time. For instance, they may find a better job in another city, or they could have had twin babies.

What worked for a Buyer’s lifestyle 4 years ago may not work come closing time.

Important Considerations for Assignment Contracts

There are several important considerations to take into account when an AC is present.

Assignment Fee – What You Should Know

The assignee is essentially an intermediary that brokers deals between buyers and suppliers, in exchange for an up-front payment. This fee is paid before the supplier incurs any other costs.

The assignee, who is usually the assigning company, does not usually pay the usual costs of the buyer.

The new buyer will be taking on the expenses that the assignor would normally incur. In most cases, the assignment fee is less than what a realtor or broker would charge in a traditional transaction.

The assignment fee is sometimes less than what you’d pay to a traditional broker.

When you are looking at purchasing a property, it is important to compare the fees associated with different options. For example, a 2% assignment fee compared to a 6% brokerage fee can save you $200,000 on a $5 million purchase price.

A wholesaler is a professional who earns a living through commissions.

If the assignor requires that the fee be deposited into escrow, it is typically non-refundable – even if the deal falls through after the assignment provision has been signed.

In other cases, the assignee will pay the fees to the assignor directly.

Real Estate Contract Assignment Clause

It is up to the buyer to decide whether to go through with the purchase or assign the contract. Although the presence of an Assignment Clause (AC) in a real estate contract does not force the buyer to assign the contract, they become the assignor if they choose to exercise the AC. Ultimately, it is up to the buyer whether to complete the purchase or assignment.

It is up to the purchaser to decide if they will go through with the sale or reassign it.

If you’re looking to assign your purchase contract to someone else, it’s important to let the seller know of your intent. After all, the seller might object if you try to assign the property without their knowledge. By signing an Assignment Contract (AC), you’re letting the seller know that you may be assigning the purchase contract to another party.

If you show up at the closing with an unexpected buyer, you run the risk of ruining the deal.

The AC in the contract could deter some sellers from selling to you. Some owners are very picky about who they choose to sell to.

The possibility of the real estate agent’s reputation being tarnished by a bad experience with an assignment agreement could negatively impact the deal. The agent should discuss the possibility of this with the client before agreeing to the assignment.

Chain of Title

If you assign your property before the closing date, you will not be in the “chain of ownership”. If you sell it after buying, however, you will be in the “chain of ownership”.

If you buy and sell the same property within a short period of time, you will have two names on the deed, and this will cost you double the closing costs. Double or back-to-back closes.

Enforceability

There are some situations where an assignment may not be binding, such as when:

If any of the above apply to your situation, then the assignment might not be enforceable.

Most types of property do not allow you to assign a contract. An “REO” (Real Estate Owned) is property owned by the bank after it has been foreclosed on. Usually, there is a 90-day wait before it can be sold again.

A typical assignment contract will have a clause that stipulates that the property can not be resold for a period of ninety days.

Conclusion

What is an assignment in real estate? An assignment in real estate is when a property owner assigns their rights to another party. This can be done for a variety of reasons, but usually, it’s because the original owner no longer wants or needs the property.

Assignments are typically used in investment properties, where investors will buy contracts from sellers and then assign those same contracts to other buyers for a higher price. While this may seem like a complicated process, it’s actually quite simple once you understand the basics.

Justin McGill