Real Estate Wholesaling

Why Wholesalers Should Never Assign Contracts Again (& What to Do Instead)

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Wholesaling through assignments is stupid. I hate to break it to you. 

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I know, most people say wholesaling is the best way to get started in real estate. And they present it like wholesaling is synonymous with assignments—you can’t do one without the other.

The fact is, though, this is 100 percent false.

There are actually three ways to wholesale:

  1. Through assignments
  2. Through a double close
  3. Through purchasing a property outright (and then selling it later)

I’m not convinced any of them are the best route to go if you’re just getting started in real estate investing.

There is an alternative that not many people talk about. It’s one that gives you all the benefits of wholesaling through assignments with none of the drawbacks. 

I’m going to share that alternative with you here. But first…

Why Should You Take My Wholesaling Advice?

This is my first blog post on BiggerPockets in several years. You are wise not to trust what I’m sharing without some kind of qualifier.

man with blue geans and sneaker shoes in stair

I’m Jaren—nice to meet you! A few years ago, I helped scale a wholesale company from averaging eight to 12 deals per month to averaging over 25. We purchased all of these properties in-house, closed on them, and then turned around and sold them to investors.

I was head of the dispositions team, which means it was my job to make sure we sold those 25-plus properties every month. While at this company, I also helped start an interview-based podcast all about wholesaling and got just shy of 100 episodes under my belt. We interviewed some of the best wholesalers in the country.

Needless to say, I’ve learned a lot on the subject over the years. So, when I tell you that wholesaling through assignments is stupid, it’s not because I’m trying to discredit wholesaling. 

I just know there is something better out there, and I would be doing a disservice to our industry if I didn’t tell you about it. 

Related: Top 3 Newbie Wholesaling FAQs—Answered!

Major Drawbacks to Assignments in Wholesaling

When you wholesale through assignments, there are a lot of limitations. Let’s quickly run through the major ones below.

1. You Have to Disclose How Much You Make to Your Buyer

Due to the nature of assignments, your end buyer will always know how much you’re making. You have to spell out how much your fee is in the assignment agreement, and if the buyer has a problem with how much you’re making, they can refuse to do the deal.

This gives them the upper hand in the negotiation, and there is nothing you can do about it. 

2. Your Ability to Advertise the Property Is Extremely Limited

A lot of wholesalers feel like it’s not a good idea to disclose to the seller that their goal is to sell the property to another buyer. They feel that this would scare the seller away from doing the deal.

(This is TERRIBLE business, by the way, and you should always operate with 100 percent transparency.)

But if you don’t disclose this, how do you list the property for sale? How do you advertise it online without the risk of them seeing the listing on Craigslist or Facebook Marketplace? If the property is owner-occupied, how do potential buyers conduct walk-throughs in order to run due diligence? 

It’s an uphill battle from the start… (Are you beginning to see why I said it was stupid?)

3. You’re at the Mercy of the Seller

The reality is, whenever you assign contracts, you never really know if you’re going to be able to close successfully until it actually happens. 

If the seller changes their mind, it could ruin the deal and your reputation—especially if it happens within a few days of closing. There is nothing worse for investor-buyers than a deal falling through last minute. 

If it happens frequently, pretty soon people are going to brand you as a flake that can’t close. Even though the fault may lie with the seller, it’s your reputation on the line, and it’s not something you should risk.

4. Assignments Are a Gray Area Legally

The last drawback to mention is how, in certain markets, wholesaling through assignments may be perceived as practicing real estate without a license. Assignments have a designed purpose, and using them to wholesale is a loophole that a lot of real estate professionals don’t like. 

Close up customer hand choose sad face and blurred smiley face i

Here’s an example of how an assignment is meant to work:

Say you’re a real estate investor who always avoids houses with basements. You have a lead that comes in that’s a killer deal.

At first, the seller tells you that the property doesn’t have a basement. You’re so convinced that this is a great deal that you submit a strong offer, which the seller accepts. Both of you sign a purchase agreement. 

After conducting your due diligence, however, you find out that the property does in fact have a basement—the seller misinformed you.

Instead of walking away with nothing, something you could do is assign this property to a fellow investor in your network who you know doesn’t mind basements. That way, the seller still gets to sell their property, the buyer gets an amazing deal, and you get to walk away with a little money for your troubles.

It’s a win-win for all parties involved.

This is how assignments were designed to be used: as a solution to a one-off deal falling though—not as a primary acquisition strategy!

Someone could make a strong case that when a wholesaler assigns contracts, they’re functioning as a listing agent without a license. In practice, what a wholesaler is doing is locating a seller and then going out to find a buyer for that seller and making a small “fee” for their services. 

This is EXACTLY what a listing agent does for their clients! 

Sure, the assignment agreement does provide a loophole that can be exploited. But would it really hold up in court?

Practically speaking, there is very little difference between what a wholesaler does through an assignment versus that of an agent representing a seller.

Related: The 8 Most Common Lies Newbies Believe About Wholesaling

Why People Assign in the First Place

One of the main reasons why so many people are attracted to wholesaling through assignments is that it provides a way for them to get started in real estate with little to no initial cash investment. And though this is technically true, it’s a lot easier said than done. 

Again, there is a much easier alternative that gives you all of the benefits of wholesaling through assignments with none of the drawbacks…

Are you ready for the big reveal?

Simply Become a Real Estate Agent

Remember earlier when I said that, in practice, there is very little difference between what a wholesaler does through an assignment and what a listing agent does for a seller? 

What if you simply become a licensed real estate agent, who markets to motivated sellers, builds a network of investor-buyers, and then just structures it so the buyer paid you commission? 

You’d never run into any legal issues, you’d get direct access to the property for showings, and the seller would expect you to take pictures and have listings all over the internet! In addition, you’d have even more resources, support, and exposure, because you’d have access to the local MLS and Realtor association.

If you structure it so the buyer pays the commission, the seller has nothing but upside. Especially in instances where the property is distressed, it would be a no-brainer.

You’d be getting started in real estate, making great money, wouldn’t need a lot of capital to get started… You really can’t argue with what I’m saying! It’s a WAY better option!

Conclusion: Wholesaling Through Assignments Is Stupid

My goal in writing this post was to try and help at least one aspiring real estate investor avoid the swamp that is wholesaling through assignments. 

I hope I’ve made my point. I’ll see you in the comments section. 

Do you agree or disagree with my opinion about assignments? 

Weigh in with a comment below.

Jaren is the senior creative director of REtipster.com, an online blogging platform that teaches people how to invest in real estate. He remotely runs a full-time land flipping operation based in Florida and is actively pursuing his first apartment building.

    Sharnell Nelms Realtor from Houston, TX
    Replied 22 days ago
    Thanks for sharing. I don’t like playing in the gray areas. That has been my number 1 reason for not jumping into a deal. I have always said that sounds stupid, I am glad I am not alone. Btw, I am a licensed real estate agent.
    Jaren Barnes Real Estate Coach from Chicagoland
    Replied 18 days ago
    Hi Sharnell, I 100% agree! And kudos on being licensed - I wish more investors were. Have you ever experienced other investors dissing you because you're licensed?
    Vitaliy Volpov Attorney from Albany, NY
    Replied 22 days ago
    Hey Jaren, Thanks for posting! Your points make sense. But, I think there are some pretty big caveats that I think should be mentioned. The state laws on wholesaling and on real estate licensing vary greatly from state to state. For example, as many people have heard by now, Illinois now requires wholesalers to be licensed to in order to wholesale. In New York, however, where I practice law and where I am a part owner of a real estate brokerage, there is no requirement to be a licensed real estate agent/broker to wholesale. Assignments of contracts, as of right now, are perfectly legal whether you have a license or not. But, if you are a licensed real estate agent in NY and you agree to represent a client as their agent, your listing with them cannot be a “net listing,” meaning that your commission can’t be the difference between what the seller told you they are happy walking away with and what you are able to sell the property for. Instead, you have to either do a flat, pre-determined commission fee or a percentage. The industry standard in our area is 6%. So, as an agent, on a $100k property, the commission would only be $6k and it would be further split up between the listing broker, the listing agent, and the selling broker, and the selling agent. So, as a real estate agent working for a broker, the would-be-wholesaler, might only make $2,500 after all the commission splits. On the flip side, if you don’t represent the seller as their agent, but you instead wholesale the property as an arms-length investor, you might be able to make $10k or $15k or more on the same deal and not share any of it with any broker. That’s a pretty big difference for arguably the same amount of work. In addition to the difference in profit, you also have all of compliance requirements and fees as a real estate agent. They are not exorbitant in NY, but should definitely be considered before getting your license. I don’t want to sound like I’m against investors getting their real estate licenses. There are a lot of other benefits to getting it (e.g. making commissions on their buy-and-hold deals and flips that would otherwise go to an agent they hire). In fact, most of the agents in our brokerage are real estate investors. But, if the sole reason someone is going to get their license is because they want to wholesale, that is not really a good reason in New York. Vitaliy
    Jaren Barnes Real Estate Coach from Chicagoland
    Replied 17 days ago
    Hi Vitaliy, Thanks so much for your points. I 100% affirm that depending on what state you're in determines how legal or illegal wholesaling is. I know people who assign contracts all the time that are not licensed. I was just highlighting that if we're all honest with ourselves, when you assign contracts WITHOUT a license, you're essentially practicing real estate. We can fight this fact, but if we're honest... it's the truth. Also to you're point about a 6% standard commission, you don't have to take what's standard. You could structure it so your flat-rate commission equals to whatever you would make as an assignment fee, and a further point is if you structured yourself as an agent that works with motivated sellers AND investor buyer's you'd represent both sides of the transaction. You would have to pay out the split with your broker BUT there are brokerages out there that only charge a flat transaction fee of say $300 or so: https://www.charlesrutenbergre.com/ Even if worst case you have to pay out commission splits to your managing broker, just do it for two years and then become your own broker and you're in the game.
    Lori Greene Specialist from Huntsville, UT
    Replied 22 days ago
    I know an even better strategy. Disposable LLC's. This gets around the issues of assignments (sellers and agents being turned off by them), double close (risking the cash buyer not coming through if you used transactional funding instead off your own money) and you don't have the regulations that limit a real estate agent. You simply create an LLC for the purposes of making an offer under, instead of in your own name. When an offer is accepted, you sell the LLC and transfer ownership of it to your cash buyer. Since the LLC owns the contract, now the new owner of the LLC can take over from there. Repeat. You can have several LLC's that you rotate around for making offers. If an offer doesn't get accepted, you can re-use that LLC on the next offer (never make more than one offer at a time under one LLC). I learned this method from a great real estate attorney. Now I use it and teach it to all of my investing students. Works great. But do check with your own attorney to make sure there are no regulations where you are that would make this strategy an issue.
    Jaren Barnes Real Estate Coach from Chicagoland
    Replied 17 days ago
    Hi Lorie -thanks for commenting! Interesting! I've never heard of disposable LLC's sounds like it could be a viable solution. I'll look into it. Do you have any links you can share with me where I'd be able to do some research?
    Will Barnard Developer from Santa Clarita, CA
    Replied 7 days ago
    Jaren, good points in your article however there are more than the 3 ways you listed to wholesale. After 100 podcast interviews and interviewing many top wholesalers, I am surprised you have never heard of this strategy or that it was never brought up in all those events. Additionally, I have personally outlined this strategy numerous times over many threads right here on BP for over a decade. One of those other ways is the entity approach - named above “disposable LLC” which is not a legal or 100% accurate term, but that’s not the point anyways. You could use an S Corp or an LLC and you can certainly make offers on more than one property in it if you like, but once you get one under contract, you would be selling your ownership of said entity and thus any other offers vested with that entity on the purchase agreement which also get accepted would need an amendment to change the vesting to another newly formed entity. The beauty of using an entity for wholesaling is that you the wholesaler own the entity and that entity would have a vested interest in the property through the escrow process. At closing, that entity owns the property now and selling that entity, which in turn holds title to the property, is no different than selling any other business. With a caveat that in some states, if you publicly marketed the property, you still may be violating licensing laws so this strategy works best when you have your buyer in place ahead of time, i.e. no need to publicly market it. A similar strategy is using a trust (does not have to be a land trust). Simply name yourself as the trustee, your end buyer as beneficiary and at closing, your buyer has in hand your resignation as trustee doc and names their new trustee. In doing these formats, you as the wholesaler are actually the buyer and no need to publicly market or break licensing laws in most states. All you are doing is selling your shares/ownership to your buyer/partner or removing yourself as trustee for a fee from the trust. I have heard silly arguments that this step is too cumbersome, more work than needed (just assign the contract) and many other excuses. The truth is, it is less expensive than a double close as you only have one sake transaction with one set of fees, no loan costs needed (your end buyer funds the original escrow as your partner in the entity/trust), and you avoid the legal issues in most states of assignments which is now getting stronger and stronger opposition across the nation and I would guess NY will eventually adopt these rules as well.
    Mark JOhnson Investor
    Replied 22 days ago
    Here's another issue with wholesaling. In my area of South Carolina many attorneys won't close with an assignment contract. They are not comfortable with assignments and I've been told they are in that grey area of being legal or not.
    Jaren Barnes Real Estate Coach from Chicagoland
    Replied 17 days ago
    Hi Mark! I 100% agree - assignments are just bad business if you ask me. (Unless used in their designed purpose).
    Mark JOhnson Investor
    Replied 22 days ago
    I wouldn't even consider disposable LLCs. Each LLC requires independent accounting, eins, bank accounts, etc. If you tried to scale and do more that a few per year it would be an accounting and tax nightmare! (In my opinion and I manage many LLCs currently)
    Jaren Barnes Real Estate Coach from Chicagoland
    Replied 17 days ago
    Interesting! So you'd suggest buying the property in a land trust and then assigning the end buyer as the trustee?
    Will Barnard Developer from Santa Clarita, CA
    Replied 7 days ago
    Mark, I don’t think you have all the facts as your explanation against the use of an entity does not make sense. In doing this process, your end buyer will handle the accounting costs of the entity moving forward after close of escrow, your only costs and involvement is the formation of the entity which is way cheaper than any other option excluding assignments (which is more often then not illegal). Scaling is simply forming a new entity for each purchase, not for each offer so it is scalable. Jeremy - you don’t “assign” the new buyer as trustee, you name them as beneficiary and then fire/remove yourself as trustee from that trust giving the buyer their choice of naming their new trustee.
    Tim Silvers from Las Vegas, Nevada
    Replied 22 days ago
    That's why land trusts make more sense. They act as nothing more than a facade, are pass-through entities, have no EIN or bank accounts to worry about, as everything is reportable to the beneficiary of the trust which is hidden from public record. And you can make up a new trust for every deal at no extra cost.
    Tim Silvers from Las Vegas, Nevada
    Replied 22 days ago
    Assigning contracts stupid? So, does getting a getting a license to have a bureaucratic pipeline to one's neck in addition to making less money, to putting up with some idiot broker and his or her rules and dipping into one's commission, to having to over-disclose every little detail, to being held accountable as a fiduciary make more sense when it comes to making money? Not a $%^%&* chance, buddy. Wholesaling is essentially micro-flipping a property without the risk and hassle, and serves a purpose of getting the property to a targeted buyer that can handle the heavy lifting of repairs and holding risks. You don't need to solicit if you are proficient enough to have a healthy buyers list of cash-ready investors ready to buy and close at the drop of a dime. And fee disclosure? Professional buyers don't give rat's a$$ about what you make as long as the deal makes sense to them. If they raise a fuss, they are the wrong buyers. Fire them. As far as sellers that back out, they're in breach. You record a memorandum of contract or file a lis pendens to protect your interest and sue them if you so desire. Or avoid the fight and move onto the next deal. If you consider the fact that a properly-structured fully-executed purchase contract that allows for assignability that is compliant in the jurisdiction in which the property is located is by law held as an equitable interest, regardless of what happens next, then there is not really any case against assigning contract. The mistake that the unsavvy and the newbies make is that they solicit the property instead of the contract.
    Jaren Barnes Real Estate Coach from Chicagoland
    Replied 17 days ago
    Hi Tim! Sounds like I struck a hot button with you. I appreciate you're passion - comments like this always make things interesting! To your points though: 1. You don't have to work with a broker that is restrictive. There are brokers that breath down your neck and then there are some that don't give a rip what you do. 2. I can see your point about cash buyers not caring about how much you make... but you still have far less control of the property with assignments. How do you handle showings? Do you disclose to the seller that you're shopping it to other investors? How does that work?
    George Joy from Farmington, New Mexico
    Replied 20 days ago
    Well, that's a great idea if you want to become an agent. Most of us don't, especially with the onerous regulatory requirements most states require of agents. Saying you should become a real estate agent to get started in RE is like saying you should jump in a river when all you want is a drink of water. Vitaliy hit the nail on the head with all the issues with being an agent. Having a former sister in law as an agent, I saw the issues she had with lacking income, working like a dog and splitting her earnings. Nope. This article wasn't helpful at all.
    Jaren Barnes Real Estate Coach from Chicagoland
    Replied 17 days ago
    Hi George... Sorry my friend but I disagree. I responded to Vitaliy's comment ;-) I agree that being a CONVENTIONAL real estate agent at a RESIDENTIAL OR COMMERICAL brokerage isn't the best path to go. But if you're an INVESTOR FRIENDLY agent and you work under a broker who gives you a lot of autonomy... it's the best path for people who don't have money to take down their own deals. The best would be to just have investor money to take them down but for those that don't have that... being an agent is a great way to go -IF they're savvy and can set it up properly.
    David Sussman Rental Property Investor from Indian Trail, NC
    Replied 20 days ago
    Very well-written article...however the content falls flat on its face. I won't belabor the points that others have made in previous comments, and I'll just say this: If I wanted to be a real estate agent, I'd already be one. If I wanted to spend 6-8 weeks in class, take and pass a state exam (which in my state has a notoriously low pass-rate), find a broker to work under, then share most of my commissions with them and everyone else with a hand out, I'd do it. But for me, the kicker is time. I have very little of it to spare. So I can't justify taking all that time away from all the other priorities in my life to sit in a class, study for a test, go to networking events, bust my hump running all over the place to showings, marketing myself like a dummy to all my facebook friends, etc....all to walk away with chump change at the end of the deal? Yeah, seems stupid. Wholesaling, when done right, is completely legitimate and is, in fact, one of the best ways to build a lot of capital from (almost) nothing. Sure, there are plenty of idiots out there doing it wrong. I hope they don't screw it up for the rest of us. But when done right, there is absolutely no sane reason that makes any amount of sense to me, to get a real estate license if you want to wholesale.
    Jaren Barnes Real Estate Coach from Chicagoland
    Replied 17 days ago
    Hi David, thanks for the comment. I'm not trying to make a case that you or anyone should be an agent. I'm making a case that instead of wholesaling through assignments... you might as well just become an agent that works with motivated sellers and investor buyers. If you can take down your own deals with investor funds (or your own) that's the ultimate path. I'm just making a case that wholesaling through assignments is a stupid move.
    Barry W Bahr from Tampa, FL
    Replied 19 days ago
    Good article. However, I got into real estate investing because I like working for myself. As a realtor I would have to work for a realty firm making someone else rich. Not for me. I wholesale but don't do assignments. I prefer the double close. Works pretty well.
    Jaren Barnes Real Estate Coach from Chicagoland
    Replied 17 days ago
    Hi Barry, thanks for the comment. I agree if it comes between assignments or double closing, double closing is the way to go for me to! When it comes to having to work for a realty firm making someone else rich, fortunately, I can liberate you a little bit. There are brokerages out there that are essentially a job making someone else rich and then there are brokerages out there that pretty much let you do whatever you want. For example, https://www.charlesrutenbergre.com/ These guys in the Chicagoland area only charge a flat, transactional commission split and are known to let agents do their own thing.
    Randy Connolly Real Estate Agent from Weymouth, MA
    Replied 19 days ago
    Thanks for the article it has caused a discussion about the pros and cons of having a license, I have a license and it is more so for investment purposes, to avoid the high commission split an agent should just go with an agency where there are higher splits no less than a 75- 30 split, and it may not be the best to go with a big company because they also take out a fee for using their brand so if it is primarily for investing that will take care of the little commission problem and you still have the benefit of the MLS exposure, the license is not a bad thing to have if you come across a crappy deal but then you have the other option to list it, also might as well stay away from listings under $400,000 if it doesn't work as an Investment, that will take care of the low commission problem, as after all the splits etc. on the lower-priced properties it does feel like getting a bag of [email protected]
    Jaren Barnes Real Estate Coach from Chicagoland
    Replied 17 days ago
    Hi Randy Thanks for the comment! 🙌I agree! That's my point - you can work with brokerages that don't charge the traditional commission split.
    Gibran Saliba
    Replied 15 days ago
    This is perfect advice depending on where you live. In some states and cities, you can wholesale through assignment still. If your state or city is lobbied by the local Realtors; then yea: become a real estate agent or broker. But I would rather lobby city and state government to make sure real estate laws can allow for assignments and creative financing. Just my two cents
    Skilak Mission
    Replied 6 days ago
    Dr Chii of skilak Mission; I have always wondered why "assignment" is necessary. If you have a trusted cash buyer u have in mind, waiting for ur deal, just have him do the traditional walk thru to double check ur virtual walk thru, and if he likes the deal, he should just put the property under contract and mail you ur service fee. Simple! ur job as a wholesaler is to locate and negotiate a deal. Period! The problem with my no-assignment approach to wholesaling, arises when ur cash buyer is dubious, not trustworthy. He can put it under contract and refuse to send you your service fee. Well that's ur punishment for working with the scums of society. U should just never work with such a cash buyer again. There is karma and it is real in life. Such people can also in spite of ur deal being on contract ( the old method)--go behind you and re-negotiate for lower price than u offered the seller and just wait out ur contract and buy it directly from the seller. That has happened to me and showed me how stupid--assignment-- process is. Therefore assignment to me is a useless academic. Having a trusted list of cash buyers wins. Lastly doing away with assignment also does away with earnest money, option period fees and double closing. Double closing arose because banks were fed up with- assignment-clause, because their sells always fell thru when the wholesaler could not find a cash buyer, so they introduced double closing or one day closing for their REO properties. Even that double closing can be reduced to single closing with my-no assignment--way of wholesaling. Just have ur cash buyer double check ur virtual walk thru and put the property on contract directly and send u yr standard service fee. People just learn one process and stick to it without questions forever!!!!!
    Will Barnard Developer from Santa Clarita, CA
    Replied 1 day ago
    You make a valid point here however, in many states, receiving any fee for those services without a license is considered brokering without a license. There are several ways to legally do it as I stated in some added replies above.