Key Takeaways:

  • An assignable contract allows the transfer of rights and obligations from one party to another before the contract's expiration.
  • Assignable contracts are common in futures trading and real estate investing.
  • Contracts can include anti-assignment clauses that limit or prohibit assignment without consent.
  • In real estate, "and/or assigns" language typically enables assignment, but local laws and seller terms may affect enforceability.
  • Assignments in real estate must follow ethical and legal practices, especially when collecting assignment fees.
  • Not all contracts are assignable; personal service agreements and those with anti-assignment clauses typically are not.
  • Parties should consider potential risks such as liability, disclosure duties, and enforceability before executing an assignment.

An assignable contract is an agreement that lets the owner of a particular asset transfer the rights and obligations to someone new. This new owner will reap the benefits of the assets before the contract closes. In most cases, assignable contracts are used in the futures market. However, not every contract in the futures market is assignable, so you need to pay close attention if you are planning to invest in this way.

Examples of Assignable Contracts

To better understand how assignable contracts work, here are three examples that show how a contract holder can lock in a profit before the contract expires.

  1. Mary Beth is a coffee trader and has a contract to buy from a certain producer for a set price until the end of June. Because of poor growing conditions, the price of coffee has gone way up, meaning that Mary Beth is underpaying and can make a big profit if she sells her coffee purchasing rights. Therefore, she sells her contract to someone else, and this other party now holds the value of the contract until it expires in June.
  2. Another example is an investor that has a futures contract. If the security on this contract appreciates before the contract expires, the investor may wish to assign the contract to someone else. This way, they'll be able to make a profit on the appreciation.
  3. A third example is in the corn industry. If you have a contract to buy corn at a certain locked in price, and the cost of corn increases, you can easily sell your contract to someone else. They'll pay you in cash, and from that point forward, they'll be responsible for any responsibilities of the contract until it expires.

Assignable Contract and Real Estate Investments

Assignable contracts are a great tool in real estate investments because they allow you to pass your purchase rights along to anyone you might choose.

In a typical purchase contract, you'd be limited to rehabbing the home, renting it, flipping it, or other strategies that involve assuming ownership of the home.

However, with an assignable contract, you can immediately pass ownership to someone else without ever technically buying it yourself. This process means you'll be passing along your purchasing rights as well as any obligations outlined in the initial purchase contract. After transferring over all of this, you'll no longer be involved in the transaction at all. Whoever you assigned the contract will now be in charge of:

  • Making sure the deal closes
  • Actually buying the property
  • Making any claims against the seller if there are problems

If you were looking to make a profit through an assignable contract, there is one downfall. You'll have to wait until the deal closes to collect your fee.

Therefore, it's crucial you choose buyers who are serious and ready to close. To make money off the deal, find a property you know someone will like and then charge them a referral fee for your involvement in the process.

This is a foolproof process, as you never have to put up any collateral or down-payment for the mortgage. Instead, all you have to do is pay a money deposit for the initial contract to go through.

Converting a normal real estate purchase contract into an assignable one is easy. All you have to do is add a few extra words to indicate the nature of the contract. For example, under the "Buyer" part, where you typically list your name, simply add the phrase "and/or assigns." That way, you can transfer ownership to anyone you'd like without having to alter or rewrite the contract.

Tips for Making the Most of Assignable Contracts in Real Estate

If you'd like to use the assignable contract method to make a profit, here are some tips to utilize.

  • Know who your buyers are before you begin, as this lowers the inherent risk.
  • Build an active investor buyer list so that when a property comes up, you have a good selection of candidates to offer it to.
  • Include both rental property investors as well as flippers on your list.
  • Learn to locate great property deals before they hit the general market.

When a Contract Is Not Assignable

Not all contracts can be assigned. Circumstances that make a contract non-assignable include:

  • Explicit prohibition: A clause in the agreement that directly forbids assignment renders it non-assignable without the other party’s permission.
  • Contracts for personal services: If the contract involves personal trust, specialized expertise, or unique qualities (e.g., a contract with a specific architect or designer), courts generally deem it non-assignable.
  • Statutory restrictions: In some regulated industries, such as government contracting or health care, there are legal barriers to transferring contractual obligations.
  • Material change in expectations: If assigning the contract would materially alter what the other party receives, courts may invalidate the assignment.

Before proceeding, it's important to review the entire contract for assignment restrictions and consult a legal professional to assess the risks.

Assignment Fees and Wholesaling in Real Estate

In real estate wholesaling, a common use of assignable contracts involves identifying an undervalued property, securing it under contract, and then assigning that contract to a new buyer for a profit.

Key points regarding assignment fees include:

  • Structure: The wholesaler enters into a purchase agreement with a seller and then assigns their buying rights to another investor for a fee.
  • Transparency: To avoid legal and ethical issues, especially with sellers, it’s crucial to disclose the intention to assign and the assignment fee upfront.
  • Earnest money deposits: These help demonstrate seriousness to the seller but are typically minimal since the wholesaler never intends to close personally.
  • Assignment documents: A formal "Assignment of Contract" document should specify the fee, assignor/assignee responsibilities, and confirm the seller’s awareness or consent if required.

Real estate professionals and investors should ensure compliance with local licensing laws, as some states treat wholesaling as a regulated activity if done without a broker’s license.

Legal Considerations and Common Limitations

Assignable contracts may seem straightforward, but legal and practical constraints can affect their enforceability and utility. Here are some key considerations:

  • Anti-assignment clauses: Many contracts contain provisions that either prohibit or limit assignment without the other party’s consent. Assigning a contract without adhering to these terms may result in breach of contract.
  • Personal service contracts: Contracts that require a unique skill or personal trust—like those with attorneys, artists, or consultants—are usually not assignable without express permission.
  • Disclosure obligations: When assigning a contract, the assignor may be required to notify the original contracting party, particularly if performance or expectations may be affected.
  • Liability after assignment: In some jurisdictions, the original contract holder (assignor) may remain liable even after assigning the contract, unless the new party explicitly assumes all obligations and is accepted by the other contracting party (a process known as "novation").
  • State-specific rules: Some states impose restrictions or consumer protection regulations, especially for assignable contracts in real estate, to avoid abuses such as "contract flipping" or misleading assignments.

To ensure legal compliance, it's best to have an attorney review the terms before assigning a contract, particularly when dealing with high-value or sensitive transactions.

Frequently Asked Questions

1. What is an assignable contract? An assignable contract is an agreement that allows one party to transfer their rights and obligations under the contract to another party before the contract ends.

2. Are all contracts assignable? No. Contracts may be non-assignable if they contain anti-assignment clauses, involve personal services, or if the assignment would significantly change what the other party receives.

3. Can you assign a real estate purchase contract? Yes, in many cases, especially if the contract includes "and/or assigns" next to the buyer's name. However, seller consent and state laws may impose restrictions.

4. What are the risks of assigning a contract? Risks include liability if the assignee fails to perform, disputes over consent, potential legal challenges to the assignment, and ethical issues if not disclosed properly.

5. Do you need permission to assign a contract? Not always, but if the contract has an anti-assignment clause or involves personal services, permission from the other party is typically required.

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