Real Estate Wholesaling

Real Estate Assignment of Contract: What Investors Need to Know

Expertise: Personal Development, Real Estate Wholesaling, Real Estate Investing Basics
98 Articles Written
assign-contract

The real estate world is filled with jargon. If you’re new to the field—and especially if you’re interested in wholesaling—here’s a term you need to know: assignment of contract. Short and simple, you:

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  1. Find a property significantly below market value
  2. Look for another buyer—normally a real estate investor—willing to pay a higher price
  3. Assign the contract to the new buyer, who then purchases the property.

What’s the point of this practice? During a prime selling season, investors are super busy trying to lock down as many properties as possible. They’re looking to get their hands on almost anything that will generate a profit. Hunting for cheap houses occupies a ton of time—so instead, they turn to wholesalers. These investors focus on finding good deals, and leave the flipping, renting, and other elements to other pros. During a hot market, we recommend riding the storm and assigning as many real estate deals as possible.

Read more: The Ultimate Beginner’s Guide to Real Estate Wholesaling

Is an Assignment of Contract Legal?

Yes—assuming it’s allowed in the terms of your agreement with the seller.

In the past, investors would simply put “John Doe and/or assigns” as the purchaser under the contract. This worked up until 2008, when banks started objecting to this clause in contracts for real estate owned (REO) properties. Your milage may vary with individual homeowners. Investors have received quite a bashing, so this clause may make a seller uncomfortable.

One solution: Write up your agreement with a trust or LLC as the purchaser. By using an entity, you have the ability to assign it to another investor because the contractual rights are under the entity, not the individual.

How Does Contract Assignment Work?

1. Find a motivated seller

First, let’s understand what a motivated seller is. This is an individual who needs to sell a property quickly. There is usually some sort of distress going on in their lives, like a job transfer, or perhaps they’re burdened with an inherited property. Keep in mind that a huge gap exists between wanting to sell and needing to sell. Knowing which category your seller falls into—it helps you know how to handle the situation.

  • Need to sell: “I have to sell this house now because I’m moving to Maryland to take care of my ailing mother, and I have no other family members in the area.”
  • Want to sell: “I’m curious to see what my house is worth because I may be selling next year.”

There is a definitive reason behind the need-to-sell scenario. In the second one, there is mere curiosity.

There are numerous ways to find motivated sellers, such as driving for dollars, newspaper ads, internet marketing, and direct mail marketing. If you begin to research real estate marketing, you will find many options—but make sure you use a combination of these strategies.

2. Get the contract

There are many assignment contract templates on the internet; however—at the very least—make sure an attorney has read and approved the document. There are two reasons this is so critical.

  1. Comfort knowing your contract is legally sound
  2. The ability to use that attorney as counsel in the event you find yourself in litigation.

There is critical verbiage that needs to be added to your assignment contract: “and/or assigns.” These three words authorize you to reassign the property to another interested buyer who is interested in the property. (Be sure to read your purchase agreement with the seller extremely carefully.) When you receive the signed contract, you now have equitable interest in the property and have some legal standing in what happens.

If reassigning is indeed allowed, include a provision in your contract that clearly explains that you, as the buyer, are a real estate investor and that you intend to assign the contract to a new buyer. Have the seller initial the provision. This reduces the likelihood of a seller objecting to the new purchaser and attempt to back out of the agreement. Assure them that they will still receive the agreed-upon purchase amount.

Related: Virtual Wholesaling: How to Wholesale Properties in Any Market From Afar

3. Submit contract to title

This process may differ in each state, but there is normally either a title company or a closing attorney that will conduct a title search. The title search will check the historical records of the property to make sure there are no liens on the property. It is important not to sell a property with a defective title. The title company or the closing attorney is an independent third party hired to make sure the deal is fair as agreed upon in the contract.

4. Assign the contract to the buyer

Yep: more marketing. Working to find your end-buyer, or assignee, can be daunting, but once you have a solid buyer, you can begin the process of closing the transaction.

When you find your buyer, ask for a nonrefundable earnest money deposit. Make sure your agreement contains language that specifically deals with earnest money—e.g., “The assignee will reimburse the assignor for the money paid up front.” You do not want the assignee to breach the agreement, which would result in you losing your earnest money.

When the buyer deposits the earnest money, you then know they have a genuine interest in the property and are willing to move forward. This fee is normally held by the title company or the closing attorney.

5. Get paid!

You get paid when the end-buyer wires the funds for the deal. This money will cover what you stated you were willing to buy the property for from the seller, as well as your fee for facilitating the transaction. 

As an example, if you told the seller you would buy the house for $45,000 and you then sold your interest in the property to the buyer for $50,000, then your assignment fee is $5,000.

Note: Never refer to the assignment fee as a finder’s fee. These are two very different things. 

Related: The Ultimate Guide to Using Direct Mail Marketing to Grow Your Real Estate Business

Other Considerations

It is standard practice that assignments are done only for profits of $5,000 or less. But if you are comfortable with the seller and the buyer, it’s possible to assign a contract for a much higher fee.

In the event you are not comfortable with all parties in the transaction, a double (or simultaneous) close keeps both legs of the transaction anonymous. Be aware: Not all title companies will agree to conduct a double close, so this needs to be discussed in advance.

Contract assignment cannot be done on all transactions. HUD homes, REOs, and listed properties have many barriers to this type of transaction. With many REO properties, the lender will ensure there is a seasoning period—normally 90 days—before you can resell the property. But as you can see, there are some clear benefits to contract assignment for big paydays.


Investors: Have you ever assigned a contract? Any questions about this process?

Let me know your thoughts with a comment!

Marcus Maloney is a value investor and portfolio holder of residential and commercial units. He has completed over $3.3 million in wholesale transactions. Currently, Marcus is a licensed agent who ...
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    Rodel Gobenciong from Des Plaines, Il
    Replied almost 2 years ago
    Thanks Marcus, that’s great. I’ll reach out within the following week. Happy New year to you and your family.
    Johanna Ola
    Replied over 1 year ago
    This is an awesome article Marcus very insightful, I woke up with this on my mind, I’m new to the game and I have already scheduled two appointments, but a little unsure how it will turn out. These properties were found through Zillow which indicates it has been on the market for more that 150 days but both sellers a bent on a fixed price. How do I even begin to negotiate? Also depending on how it goes, I don’t have an assignment agreement with me is this something I can have them do online or go back in person to have it signed? Can you also share a same of a contract assignment or refer me to a place to get one? Thanks Again for your time.
    Jahanna Robinson
    Replied over 1 year ago
    I see EMD was mentioned between the wholesaler and the buyer. Is there an EMD transaction between the motivated seller and wholesaler?
    Account Closed
    Replied over 1 year ago
    I am a fashion designer at HJacket, I love to manufacture new costumes and jackets.
    Dakota NA
    Replied over 1 year ago
    Marcus, I am trying to pm you, but I can’t find it. Where can I find a general purchase and sale agreement?
    Jonathan Luna from Inland Empire
    Replied 11 months ago
    Marcus, this post, the comments, and the content is gold. Thank you so much
    Maureen Nina New to Real Estate from Muncie, IN
    Replied 7 months ago
    Thanks a lot for taking the time to teach us more about Assignment contracts. I'd like to get started in wholesaling. How and where do I get legitimate contracts and can the closing attorney be the same as the one looking at your contract before you present it to the seller? Thanks
    Marcus Maloney Wholesaler from Queen Creek, AZ
    Replied 7 months ago
    Maureen sorry I just noticed this message. I offer a free contract you can get at marcusemaloney.com. To answer your 2nd question and yes the attorney you will use for your transactions will be the same one to review and authorize the use of your contract. Again sorry for the not responding sooner.
    Tina Jay
    Replied 6 months ago
    Hi, When purchasing from a wholesaler, do you have any recommendations?
    Giovanni Cardenas New to Real Estate
    Replied 5 months ago
    How would you go about explaining to the seller that you will be making money and why so much? Also, would I be able to get a link of the contract video?
    Marcus Maloney Wholesaler from Queen Creek, AZ
    Replied 5 months ago
    Giavanni, there's really nothing to explain. For example (Situation 1) if the seller agree to 100k as a purchase price and you find a buyer for $105k you will assign contract as this transaction everything is disclosed. The buyer is happy because you performed. You solved their problem. (Situation 2) seller agree to sell for 100k and you find a buyer for $120k you will double close the transaction. In a double close the seller will not be privy to how much you make. Direct message me for the contract link
    Enrique Villarreal New to Real Estate from San Antonio, Tx
    Replied 4 months ago
    Marcus - Thank you for taking the time to break down this process for us newbies, this is fantastic!
    Eric DeNardo New to Real Estate from Denver
    Replied 3 months ago
    Marcus, great article! I'm a newbie and I've learned a lot about marketing for sellers and buyers, but I've been completely lost in the the transaction process works once you have a contract and find a buyer. Thank you!
    Marcus Maloney Wholesaler from Queen Creek, AZ
    Replied 3 months ago
    Eric I have a video that walks you through the entire process. I know that will help you tremendously. Send me a DM and Ill share the video with you. I can't share it here
    Heriberto Velazquez
    Replied 3 months ago
    I have a question regarding #3 if anybody from Massachusetts could specify for our state by law do we use a title company or a closing attorney ? thanks in advance
    Howard Herrington Real Estate Agent from North Smithfield, RI
    Replied 2 months ago
    Heriberto, In Mass you can use either a title company or closing attorney but you should make sure that they are investor friendly. They pretty much will both do the same things.
    Pimwadee Limsirichai Real Estate Agent from Dallas, TX
    Replied about 1 month ago
    How many times can you assign interest on a property? Can you do a triple close? For example: If the homeowner sells for 100k. An individual purchases it, then assigns the contract at 110k. Can a third person "purchase at 110k" and assign their interest for 120k? So it's now a triple close, the original seller gets 100k, and 2 other persons in the middle get 10k each?
    Alsee Mccray Investor from Bridgeport, Connecticut
    Replied 27 days ago
    i absolutely agree with you 100 % i was thinking about this all along