If you’re interested in real estate investment, you’ve probably heard the term “real estate assignment contract.” It’s one of those catchphrases that sounds complex but really isn’t when it’s presented the right way. Whew!
That’s why, today, we’re breaking down the A to Z of real estate assignment contracts without all the legalese AND sharing our very own assignment contract for you to use in your own biz. You’re welcome!
What Is an Assignment Contract for Real Estate?
In simple terms, a real estate assignment contract is an agreement where the original buyer of a property gives their contractual rights to someone else. See, pretty basic…
That’s right, you don’t even have to complete the purchase — you simply hand over your place in the real estate assignment contract to someone else, usually for a fee.
Of course, this is a common practice, often referred to as “wholesaling,” used by many real estate investors. Ok, probably all of them at some point or another. Depending on the deal, of course.
What Is an Assignment Fee in Real Estate?
An assignment fee is the bread and butter of a real estate wholesaler’s income. Essentially, it’s the financial compensation you get for finding a great property, locking it down with a real estate assignment contract, and then passing that golden ticket to another buyer.
The fee is often calculated as the difference between the real estate assignment contract price with the original seller and the price you’ve negotiated with your new buyer.
For example, you’ve gotten a property under contract for $150k, and your agreement with your end buyer is for $180k. That means, you’re pocketing a lovely $30k. Chu-ching!
What’s the Difference in an Assignment Contract vs. Double Close?
Great question!
Whelp, if you’ve been around the block, you might’ve heard of “double closing.” Unlike a real estate assignment contract, where you’re simply transferring your rights, a double close means you actually buy the property first.
You become the temporary owner before selling it to your end buyer. It’s more capital-intensive than a real estate assignment contract but can offer benefits.
Like what, you ask?
Privacy!
How?
Because there are 2 separate closings! So, your end buyer isn’t privy to details of your 1st deal with the seller. Since the end buyer doesn’t know how much you bought the property for, they won’t know how much you’re profiting from selling to them.
Sweet!
How Is an Assignment Contract for Real Estate Legal?
An assignment of contract for real estate is absolutely legal!
But! There are rules to follow. For instance…
- All parties in the original real estate assignment contract should consent to the assignment.
- Also, make sure the original real estate assignment contract doesn’t prohibit assignment.
- Properties like short sales, REOs, and HUD may have certain restrictions. Always consult a real estate attorney to review the original real estate assignment contract and the assignment agreement.
How to Assign a Contract for Real Estate
Ready to navigate the ins and outs of a real estate assignment contract?
Let’s dive into the comprehensive steps to ensure you’re on top of your assignment game.
Research Potential Properties
First up, you want to identify properties with promising investment returns.
How?
Lean on market research, online real estate databases, and historical data.
You’ll want properties that not only fit your budget but also have strong future value, whether through expected community developments or through existing demand.
Secure a Contract
Once you’ve zeroed in on the perfect property, the next step is to initiate negotiations with the seller. Your aim here is to land a purchase agreement.
Pro Tip: Make sure the real estate assignment contract you negotiate includes a clause that allows for its assignment!
Submit the Contract
After you’ve secured a real estate assignment contract, it’s crucial to validate all the details. Once everything checks out, submit the real estate assignment contract according to local real estate regulations or to relevant parties like title companies or legal advisors. This sets the wheels in motion.
Identify an End Buyer
The next phase involves tapping into your network or using marketing techniques like social media ads, flyers, or even good old word-of-mouth to find an end buyer interested in the property.
Your buyer should be reliable and financially secure to ensure a smooth transaction ahead.
Draft the Assignment Agreement
Now comes the pivotal moment of drafting an assignment agreement. This document should clearly spell out the transfer of all rights from you to the end buyer, including the agreed-upon assignment fee that you’ll receive once the deal is done.
Close the Deal
At this stage, you’re almost there…
All that’s left is the closing process, and this is where a title company or a real estate attorney comes into play. They’ll handle the paperwork, ensure all legal protocols are followed, and, most importantly, make sure that your assignment fee ends up in your pocket. Hooray.
So…
By mastering these steps, you’re well on your way to successfully completing a real estate assignment contract. It’s a nuanced process, but understanding each phase ensures that you can navigate it with confidence.
Benefits & Disadvantages of an Assignment Contract for Real Estate
Navigating the complexities of real estate can often feel like you’re walking through a maze, but understanding the pros and cons of a real estate assignment contract can be your road map to success.
Let’s explore both the sunny and shady sides of this avenue.
First, the pros:
- Low Capital Requirement: Simply put, you don’t need to purchase the property outright, which significantly lowers your financial risk.
- Quick Turnaround: Essentially, you’re finding an end buyer and letting them handle the heavy lifting while you walk away with a nice chunk of change.
- Cost-Effective Wholesaling: Since there’s only one set of closing fees, you’re not just cutting through red tape; you’re also cutting costs.
- Strong Selling Point: Promising an easy and smooth transaction can be a great selling point when negotiating with property owners.
- Simplicity: The process is straightforward — you find a buyer, sign an agreement, put earnest money into escrow, and then take a back seat.
- Opportunities for Repeat Business: If done correctly and transparently, real estate assignment contracts can pave the way for future deals with the same buyers.
Now, let’s address the cons:
- Dependence on Buyers: Your entire profit hinges on finding a committed end buyer. If, for some reason, the buyer falls through or backs out, you’re back to square one.
- Limited Control: Since you don’t actually own the property, your influence is restricted to the conditions set forth in the original real estate assignment contract. You’re not in the driver’s seat for this ride.
- Visibility of Assignment Fee: Transparency’s great and all, but having your assignment fee out in the open can also be a pitfall. Sellers and buyers might reconsider their positions if they see you making a substantial profit.
- State Legal Restrictions: Real estate laws vary by state, and local regulations can sometimes be a hurdle. Realtors and other industry players may lobby against wholesalers, so know your local laws.
- Limited Property Options: Some properties, notably short sales and bank-owned homes, come with no-assignment clauses, restricting your options for wholesaling.
Final Thoughts + Downloadable Assignment Contract Sample Template for Real Estate Investors
Okie dokie…
As you can see, an assignment of contract for real estate offers a nifty way to get into the real estate game without significant capital or risk. Hooray!
They’re legal, profitable, and doable… if you know the ropes. (Rope details above!)
Interested in taking it to the next level?
Well, as promised, here’s our downloadable real estate assignment contract template — grab it, customize it, and use it for your real estate deals. Just make sire to have an experienced attorney review it before you put it into play.
Now get to it!
