Assignment of Real Estate Contract

In real estate the concept of buy low sell high often uses the “Assignment of Real Estate Contract Form”.

At one time you could go buy a house and sell it all on the same day, and have the proceeds from your end buyer fund your purchase from the original seller.  Everyone goes to closing, and you as the middle man or woman walked away with a profit for your troubles.  Due to all the fraud in real estate and mortgages over the past few years, this is becoming harder and harder to do.

But you want to wholesale properties what are some options.

1)       Get someone to fund your transaction for 1 day, usually called transactional funding.  This is an excellent way to go, although your funding source will want a chunk of your profits.

2)       Get a Real Estate License and list the property and have your “commission” be your profit.  Great if you want zero risk.

3)       You can currently still use the assignment of contract.

First what is an “Assignment of Real Estate Contract?”  This is simply a form that states that you have a contract with the original seller and you agree to sell your interest in this contract to an end buyer for a fee.  The end buyer agrees to pay your fee and take your place in the contract.

You can assign all kinds of contracts be it a real estate contract, a rental agreement, a lease agreement, the contract to mow your neighbor’s lawn, or any other contract unless somewhere in the original contract it states specifically that you cannot.

So while many of the gurus tell you to sign a real estate contract “And Or Assigns”, these words are not really necessary and can throw up a red flag if for example you are writing an offer on a property that is listed by a real estate agent.  You see while you plan on closing on the contract, even if your end buyer is not in place, the real estate agent reads “And or Assigns” to mean that “I don’t have any money” and “I probably will not actually show up at closing”.  So go ahead with the and or assigns after your name in the real estate contract if you must, but I would advise to leave that off and go with the concept that all contracts are assignable, unless they specifically state somewhere in them that they are not.

This brings us to bank owned properties.  When you are purchasing a bank owned property that is listed by your local real estate agent, 90% of the time that bank will have a special addendum that you will have to sign that specifically states that “this contract is not assignable”.  So in this case you may not be able to assign with the traditional form.  Here you might want to have a simple partnership agreement to allow your partner to go to closing.

So what is the best way to use the assignment of real estate contract form?

  1. Have a buyers database of ready, willing, and able buyers who are cash buyers and who can close quickly and know exactly what they are looking for and how much they would pay for a potential property.
  2. Go out and find that property and get it under contract for less than what your buyers in your database will pay.
  3. Let your database know you have a deal for them and you will assign it to them for some amount.
  4. Fill out the assignment form with all the particulars and have your end buyer from your database go to closing in your place and they get a great property and you get your assignment fee.

It is very important to have buyers in your database that are known buyers, that do have the cash and the ability to close and you really need to know what constitutes a good deal for them.  Then you go out and find that good deal for a little less so you can make a profit.  Because if they don’t go to closing as agreed in the assignment, then you are still on the hook to purchase the property.