BiggerPockets

Exit Strategies For Wholesalers. Assigning The Contract

What Is An Assignment of Contract?

An assignment of contract is a term that wholesalers frequently use when they are selling their rights to their existing contract. This essentially means that you will be replacing your name on the contract as the buyer with the name of your new buyer. The assignment fee is the amount you collect from the new buyer or your profit in other words. All other terms and conditions in the existing contract remain and your new buyer is obliged to follow them.

Can Any Contract Be Assigned?

Any contract to purchase real estate is assignable unless the contract specifically states that it is not. A common misconception is that you need to write language such as "and or assigns" after the purchasers name to make it assignable.

There are however, some instances when a contract cannot be assigned. Most REO's will have language in the contract or addendum that states the contract cannot be assigned. Your local board of realtor contract may also have language in it that will not permit you to assign the contract. As a wholesaler, it is very important that you read through and understand the contract that you will be using to purchase the property.

When Do I Get My Assignment Fee?

Although an assignment fee can be paid at any time, it is customary for it to be paid at closing. Like any other transaction, you would get a deposit from the new buyer and the balance at closing. Most buyers will not give you your fee upfront, because they would run the risk of "chasing" their money if for any reason the house didn't close as planned. I hardly ever do assignments, but I know a lot of wholesalers that do and they all follow this procedure.

What Are the Positives and Negatives of Assigning the Contract?

When you assign the contract rather than doing a double closing, you eliminate that second set of closing costs. The assignment fee stated on the contract is the exact amount of money you walk away with.

The primary negative of assigning the contract is that your profit is disclosed to both parties. While they are legally required to perform on the contract, this does not mean that one or both of the parties won't get upset and walk away from the closing. This would leave you in the unfortunate position of having to file a lawsuit to force the party that walked away to perform. Most wholesalers would simply just not want to do this as it is rarely worth the time and effort. I almost always do a double closing when I am wholesaling a property. I would rather pay a couple hundred extra dollars in closing costs for that second closing than to risk having this happen.

Just figure out what works best for you in your business.

Comments

• 

  Sharon Vornholt — over 1 year ago

  Thank you Jeremy.

• 

  Jeremy Krauss — over 1 year ago

  Good information. Thank you.

• 

  Bryan Patterson — over 1 year ago

  Excellent advice and thank you for posting it and making things very clear.

• 

  Sharon Vornholt — over 1 year ago

  You are quite welcome Bryan.

• 

  T.m. G. — over 1 year ago

  I appreciate this post, Sharon! Very informative.

• 

  Kevin Kim — over 1 year ago

  It is rather frowned upon to submit an offer on an REO or Short Sale with an assignment in my region. Rather than "assign", have you ever went under contract with an LLC entity then, at closing sold the assets of the LLC to the new buyer/investor?

• 

  Sharon Vornholt — over 1 year ago

  I don't really work with REO's, but I know they don't always allow you to assign the contract. I haven't done that with my LLC, but I have heard of other folks doing similar things.

• 

  John Devereux — about 1 year ago

  Thank you for the information. I can see how people might be surprised to see the profit explained at closing.

• 

  Sharon Vornholt — about 1 year ago

  Thanks John.

• 

  Steve Jones — about 1 year ago

  I can see the buyer backing out, but why would the seller back out? They're not the ones paying your fee, the buyer is.

• 

  Sharon Vornholt — about 1 year ago

  The first thing you do is go in and negotiate with the seller. You get a good price on the house; one that reflects the reparis needed and also your profit if you are a wholesaler. This is in addition to whatever formula you are using such as 70% of the ARV to leave money in the deal for the investor you will flip the house to. Let's assume the seller understands you are running a business (which is doubtful). If they see that you are making $7K to $10K on the house flipping it to another investor, they feel cheated. They don't see why you should be making that type of wholesale fee. More than once a seller has walked out of a closing because they feel like they can make that additional money. This hasn't happened to me, but to others that I know.

• 

  Steve Jones — about 1 year ago

  Do you look for the buyer after you have the property under contract? If that's the case when do you put the buyers name on the contract? Do you have to have a separate contract with the buyer?

• 

  Sharon Vornholt — about 1 year ago

  Yes. You first have to find a property and put it under contract. Then you assign (transfer) the contract to your buyer. I mostly do double closings myself.

• 

  Kenneth Souder — 9 months ago

  Thanks for the info--I am just starting to get into wholesaling--have two appointments within the next week with sellers to try to convince them to let me market their properties to cash buyers--was going to do assgnments of contract, but using transactional funding for A to B part of process would probably make more sense.

• 

  Sharon Vornholt — 9 months ago

  Kenneth - I always put the house under contract and then look for a buyer. I don't "convince them" to let me market the property; just put it under contract. You can either put in the contract an inspection contingency or a partner approval contingency as an escape clause. Then market it to your buyers list, REIA etc. Also, I always do a double closing rather than an assignment. I have info on double closings on my blog.

• 

  Melvin Bell — 8 months ago

  Thank you Sharon! This is great information especially since I've decided to become a wholesaler.

• 

  Sharon Vornholt — 8 months ago

  You're very welcom Melvin. I have a lot of information on my blog about wholesaling.