A Guide to Assignment of Contract in Real Estate

An assignment of contract involves transferring a real estate contract from an original party (also known as the real estate wholesaler or assignor) to a new party (also known as the assignee). It is also referred to as an “Assignment of Real Estate Purchase and Sale” agreement. This real estate transaction relinquishes all rights, obligations, and responsibilities of the assignor to the assignee when they close on a property. The assignor basically works as a middleman or contract flipper, selling their right to buy the property they are contracting—with equitable interest—in exchange for an assignment fee from the potential homeowner.

An assignment of contract occurs on a property that is currently under contract, and has not yet been purchased. First, the assignor finds a property, and enters into a sales agreement with the buyer to purchase the property. The home’s price, closing date, seller, and buyer are listed in this contract. When the original buyer finds a new buyer that can fulfill the original terms of the contract—like purchase price and closing date—they assign the contract to the new buyer. At this time, the assignor usually collects an assignment fee for finding someone to carry out the terms of the contract.

The main difference between an assignment of contract and a double closing is the number of closings involved in the transaction. In an assignment, there is one closing during which the end buyer (or assignee) pays the seller for the hom. This happens after the assignor has transferred the rights to buy the home to the assignee at an earlier date. A double closing or double close is when two closings take place in succession for one property. The first buyer—or assignor—purchases the property from the seller rather than assigning the contract. Then, they immediately resell said property to an end buyer, resulting in two sequential closings.

Assignment contracts can be efficient and profitable in some real estate investment transactions. Here are some potential advantages to assignment contracts.

1. 1. Possible quick profit. Assignors usually collect an assignment fee for finding the end buyer for a piece of real estate. Additionally, the assignor is allowed to set the non-refundable earnest money deposit to be collected from a buyer. Even if the buyer changes their mind, the assignor can still earn a small profit.
2. 2. It can be more affordable than double-closing. Assignments only have one closing cost, which makes transactions a lot more inexpensive than double closing.
3. 3. It can create a network. Real estate investors who become assignors can rapidly expand their networks to the many different people they facilitate transactions between. This can be a way to garner more investment opportunities.

Assignment contracts allow the assignor to make a quick dollar, but they involve a few obstacles when it comes to reaching the end goal of closing on a home. Here are some possible disadvantages to wholesaling real estate.

1. 1. They must be executed in a limited time frame. Assignment contracts come with an expiration date, which is the closing date on the original contract. It may be difficult to find a viable buyer in the limited time between when the contract commences, and the closing date of the home.
   
2. 2. An assignor doesn’t get owner’s rights. Assignors aren’t allowed to renovate or repair a property when it is under contract, because they do not technically own it yet. This can be especially tricky for those who buy distressed properties, as it can make it harder to sell in its current condition.
3. 3. The assignment fee can turn buyers off. The assignment fee is included in the contract, which means that all of the involved parties can see the profit that the assignor makes on the transaction. This can be an uncomfortable situation for some people, especially if unfamiliar buyers believe that the assignor is taking advantage of the transaction.
4. 4. Not every property is assignable. Some real estate properties will have anti-assignment clauses, such as HUD homes (which are properties built by the US Department of Housing and Urban Development) and REOs (which are properties owned by lenders). This prevents wholesalers from trading these types of properties through assignment contracts.
5. 5. Buyer financing may be difficult to confirm. A property’s end buyer will need to be able to pay the price that the assignor and the seller agreed on. This often means that the property needs to be sold to an all-cash buyer, because many lenders will not finance assignment contract deals. All-cash buyers are typically difficult to find.

All investments, including real estate investments, come with inherent risks which may involve the depreciation of assets, financial losses, or legal ramifications. The information presented in this article is for educational, informational, and referential purposes only. Consult a licensed real estate or financial professional before making any legal or financial commitments.

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