Assignment Contract w/o a Purchase Price or Defined Fee

15 Replies

Hey Gang,

Searched for an exisiting thread that touched on this buy couldn't find one on the first couple pages of results.  

The quick and dirty question:

What is your opinion on getting an assignment contract signed by a seller without a defined selling price (nor will it list an assignment fee)?

The Background (aka long question):

I have 3 raw land owners that don't fit into my buying criteria to use my own capital.  However, when mentioning an assignment contract instead - risking time instead of money - they said sure.  I know I need to have these properties under contract to (morally for me) talk to the potential buyers I have identified.  However, I'd really like the flexibility to try and maximize both the cash the seller could receive, earn myself a decent fee and expediate the selling process by marketing at an under-retail price.  I feel these can all be accomplished.

The assignment fee could be stated in the assignment contract - stating I will take $$$ for selling the property - but I have no idea what that number could/should/want it to be.  Depending on the property - I'd love to take $1000-$5000 as a fee - but I want the flexibility to define my fee based on what I can get the property sold at.  Example, Retail is $15k, I sell for $10K, I'd like a $2k fee.  If that sell price moves to $12K, I'd like $2500.

Am I asking for a pipe dream here?  Has anyone structured wholesale deals like this?  Guidance, opinions, and "slaps to the face" are all welcomed.  Need some help so I can present a contract to these guys so I can start selling there land.  Thanks -Sean

@seanmohen

I am fairly new myself and cannot offer legal advice but to help with my opinion on your matter, 

I would first negotiate a price with the seller on how much they will take on the deal and you and seller sign a Purchase or Option Agreement. Then either assign the agreement to an end buyer where only the buyer knows your fee or do a double close. The latter one allows neither the seller or the buyer to know what your fee is, which keeps the fee private. You can get a better understanding on your fee once you see the most the buyer will pay.

Hope this helps.

Good luck and keep us posted.

Thanks @Geoffrey F. for the input man - really appreciate it.

Honestly, I'm not too concerned with hiding the fee as much as I'm concerned with structure flexibility.

Maybe I'm getting in my own way by not wanting to maximize the middle (my cut) but I plan on being in this county for some time and don't want to get a reputation that would hurt me in the long run with these individual land owners.

Hi Sean,

I'm new to investing too. But while recently listening to a training module conducted by a veteran investor, I learned we can opt to set wholesaling fees as a percentage of the ARV. In all the training I had, I've only heard of set $ amounts up until this training. So, it appears to be ok to consider using a percentage such as 5%, 10%, 15%... of the ARV. The percentage she gave as an example was 15%. This would shift your profits with the ARV, profiting you more when it is more, etc. not capping your potential fee to a $ amount.

Though my training was on residential properties, I hope this helps give you another option to consider for your endeavors.

Lukeisha

Dove Covering REI, LLC

I am new to investing also! I like Lukeisha's idea of using a percentage. That way you'll be consistent and fair with all the deals you do. :)

@Lukeisha Carr

Love the suggestion and never thought about it that way.  I will have to do some micro testing to see if it'll work.  With land being lower, the % to wholesale land would be a bit higher (20% for $15k only nets $3k) but that might be exactly what works.  All about selling it!

Huh? Are you trying to collect your assignment fee from the sellers? If so, wrong....obvious licensing violations. I think you confusing things with an "assignment contract" maybe thinking there s one contract combined for the purchase ad the assignment. Your fee won't be a set percentage (% of ARV vs actual purchase is a little silly, and sounds like some guru's "new" twist) it will be what the market will bear. If you're under contract for $30k and investors will pay $27k, no fee. However, if you're under contract on that same house for $22k, then....

I'd use an option to buy.  Options spell out the the consideration given to the seller (for example $500) for the option to buy for a set price, and the time frame in which you must exercise the option.  The option agreement should include an underlying purchase agreement should you or an assignee buyer decide to buy.

You can sell your option contract for anything your buyers agree to pay.  The buyer pays you your agreed price for selling your interest in the option.....and then steps into your shoes in the option agreement and purchase agreement.

I'd stop thinking and talking about fees.  You're selling your interest, your right to buy, in the option agreement. When it's me, I base my asking price on what I think the end buyer will pay. I'm not being paid a fee or commission.  I'm selling .  If you get it under contract for $8K and find a buyer for $15K, then you make $7K.  

@Guy Gimenez Thanks for the info; I'm make sure to keep that in mind.

@K. Marie Poe (Can never do the intials!  lol)  I'll dig into and get an options contract.  My 1-page PSA has an assignment clause in it; but doesn't spell out the transaction like an options contract would.  I'll stop over overthinking it too.  I suppose these guys either want me to help them sell it or they don't.  I've been completely up front with them so it won't be too hard to explain how I plan on selling it.

Originally posted by @Sean Moen :

@Guy Gimenez Thanks for the info; I'm make sure to keep that in mind.

@K. Marie Poe (Can never do the intials!  lol)  I'll dig into and get an options contract.  My 1-page PSA has an assignment clause in it; but doesn't spell out the transaction like an options contract would.  I'll stop over overthinking it too.  I suppose these guys either want me to help them sell it or they don't.  I've been completely up front with them so it won't be too hard to explain how I plan on selling it.

Again, I suggest acting and thinking like a principal.  Or get licensed.  You are not helping anyone sell anything.  You are a buyer with an option and/or purchase agreement.  

Since we had other new folks here;

Cali allows "net listings" by a Realtor under certain conditions, you aren't a Realtor, but in other states, you can be acting as an agent under agency law. So, in Cali, following the disclosure requirements even if you are not a Realtor may avoid some issues if you are seen acting in an agency capacity.

The NAR and other states see "net listings" as unethical and illegal. In wholesaling you are not selling the property as K Marie mentioned, you have a contract to sell. It is the concept of net listings that can become an issue and the value attached to your contract.

Net listings is where a middle man allows the owner to only receive a  net amount and they receive everything above that amount. It is screwing the owner out of equity in the market. Which is another reason your contract value or "fee" should be close to what the alternative cost to an owner should be.....a real estate commission, not just what you  think you can get out of the end buyer. That is, if you are doing basically what a Realtor would do, if you rehab the place, then you should get more, obviously.

Wholesaling is a very touchy matter as there are some areas where it might be acceptable and more areas where it is not, you can see the issues in the forums on BP.

You also need to stay away from acting in an "implied agency" function under Agency Law, not to be confused with "real estate agency" under state laws. You can become an agent of a principal by your actions and deeds with the principal allowing you  to act.

I suggest you get a license.

A much cleaner arrangement is to buy the property with seller financing, you could have a one year balloon, then advertise the property and sell it, payoff the note and the price you get is irrelevant.  :)  

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

Without a RE license, you cannot legally charge/collect a fee.

You need to act like a principal and get the lowest price on the property... if the sellers will sell for $5k and you can get $15k, get the $5k deal signed, with a right of assignment. Forget trying to get the owner a higher price and narrow your profit.

Sounds like you want to be a dual agent... stop! You might get yourself in trouble.

Just be a cutthroat mofo buyer and try to make as much on each deal as possible.

That said, sounds like you'd like to be an RE agent and collect fees. You might have found a niche that few agents work so maybe getting a license could work out nicely for you. But keep your goals clear. If you want to get the highest price and best terms for the sellers, you need a license and a listing.

@Bill Gulley

Thank you for the insight & pep talk.  I have absolutely ZERO interest in being an agent.  I want to be a raw land investor.  There are 3 tools that I need to have in my toolbox:

- Standard PSA (Easy one cuz it's your own capital)

- Walking Away

- Wholesaling the deal (which I will now call my Options Contract)

The Options contract is what I'm trying to navigate correctly.  The more input I keep getting, the clearer and clearer the picture becomes.

Originally posted by @Bill Gulley :

A much cleaner arrangement is to buy the property with seller financing, you could have a one year balloon, then advertise the property and sell it, payoff the note and the price you get is irrelevant.  :)  

When working directly with sellers that will accept seller financing, I highly recommend this method of buying and re-selling.  I've gone as short as a 4 month term on the note.  The control you have on the re-sale when re-selling as an owner makes all the difference.  You have way more time, advertising rights, possession rights, rights to improve, and low carrying costs....some pretty important components of retail sales.

Originally posted by @Sean Moen :

@Bill Gulley

Thank you for the insight & pep talk.  I have absolutely ZERO interest in being an agent.  I want to be a raw land investor.  There are 3 tools that I need to have in my toolbox:

- Standard PSA (Easy one cuz it's your own capital)

- Walking Away

- Wholesaling the deal (which I will now call my Options Contract)

The Options contract is what I'm trying to navigate correctly.  The more input I keep getting, the clearer and clearer the picture becomes.

The serious, high volume raw land investors I know are also agents. There is always someone in the partnership or org. who is an agent. Raw land is often easy to buy and hard to sell. Don't cut yourself off from the best tool for selling raw land.....the MLS and other raw land agents.