Key Takeaways

  • Assignment real estate contracts allow investors to profit from property deals without owning the property.
  • Assignors must secure contracts with assignable clauses and navigate legal and ethical considerations.
  • The strategy is often used in wholesaling, where profits are made by selling the right to purchase a property.
  • Not all states permit marketing a property without ownership; compliance with local laws is crucial.
  • Assignments typically require cash buyers and quick closings, limiting financing and repair options.

Assigning real estate contracts refers to a method of earning money from buying and selling real estate. You find a seller who is eager to sell their property at a price that is far below its market value. Then, you find a buyer willing to pay a higher price for it.

How Contract Assignment Works

The first thing you need to do for contract assignment is to find a motivated seller. This is a person who owns a property, and for some reason, needs to sell in a hurry. This is generally because of a problem they are having, such as needing to move to a new home quickly. You'll need to be able to tell the difference between this sort of seller and someone who isn't in so much of a hurry to sell, and perhaps just wants to know what the property is worth.

You can find motivated sellers by placing ads in the newspaper, marketing on the internet, or sending direct mail. A combination of strategies works best.

The next thing you need to do is to obtain an assignment contract document. You can find templates on the web, but it's a good idea to have an attorney look it over before signing anything. That way, you will know that everything is completely legal. You will also be able to use that attorney if things don't work out as planned.

After the contract is signed, you submit it to a title company or an attorney who handles real estate closings. They will then do a title search. This ensures there are no existing liens against the property. This step is crucial because you do not want to buy a property that has a problem with the title. The title company is objective and independent and therefore makes sure everything is fair and legal.

At this point, you may search for a buyer. This will require more marketing strategies and can be a difficult process, but when you do find a buyer, you can move on to the next step - closing on the property. You'll need to collect a non-refundable deposit known as “earnest money” to make sure the buyer won't back out. If the buyer does change their mind, you get to keep the earnest money. This amount can be determined by you or the buyer.

Next, you get paid! The amount you receive will cover the amount you agreed to pay the property seller, along with an amount you get to keep in return for finding the buyer and making the transaction happen.

While this process takes place, you should make sure the seller understands how the process works, and that you will make a profit from the transaction. Otherwise, either the seller or buyer may decide they don't like the idea of your profiting from the sale and may back out. Reassure the seller that they are still getting the amount agreed upon for the sale.

Most contract assignments are done for $5,000 profit or less, but you can do it for a higher amount if you choose. If problems arise, it's possible to do a double or simultaneous closing, thereby keeping both parts of the sale separate and anonymous. Some title companies may not agree to do this, so if it becomes an issue, you should discuss it in advance.

Legal and Ethical Considerations

Assignment real estate deals operate in a legal gray area in some jurisdictions. It’s essential to understand:

  • State-Specific Laws: Some states restrict or regulate real estate assignments, especially regarding marketing a property you do not own.
  • Licensing Requirements: In certain areas, acting as a real estate wholesaler may require a real estate license.
  • Disclosure Obligations: Both the seller and the buyer must be informed about the nature of the transaction and the assignor’s profit potential.

Failure to disclose assignment intentions, or engaging in misleading advertising (such as marketing a property without the seller's consent), could result in legal penalties or civil disputes.

Always consult a qualified real estate attorney to ensure your documents and processes are compliant with applicable regulations.

Key Elements of a Real Estate Assignment Contract

For an assignment real estate strategy to work effectively, the purchase agreement must contain an assignment clause. This clause allows the buyer (the assignor) to transfer their rights under the contract to another buyer (the assignee). It's critical to use clear, unambiguous language, such as "and/or assigns" after the buyer's name, to legally permit the transfer.

Additional contract elements may include:

  • Assignment Fee Disclosure: This clause outlines the fee the assignor receives upon transferring the contract.
  • Earnest Money Terms: Specifies the amount and conditions of the earnest deposit, which helps secure the assignee’s commitment.
  • Closing Date Flexibility: Some contracts provide flexibility for closing timelines to allow the assignor adequate time to find an end buyer.
  • Non-Circumvention Clauses: Protects the assignor from the buyer going directly to the original seller to bypass the assignment fee.

Contracts without assignment rights may be labeled “non-assignable” and can require explicit written permission to transfer, or prohibit it entirely.

Drawbacks of Contract Assignment

Contract assignment, or wholesaling, can be a profitable venture, but there are a few pitfalls to watch out for, such as:

  • You cannot make any repairs or renovations to the property because you do not own it at any point.
  • You cannot offer any type of financing to the buyer.
  • You must get the sale accomplished within a short amount of time before the contract expires.
  • The process of closing on the property is detailed and can be complicated.
  • You must find a buyer who is willing to pay in cash because it's hard to find a lender who will approve a mortgage for an assigned contract.

You also need to check the laws in your state, because in some states it is not legal to market a property that you don't own.

Alternatives to Assignment Contracts

If an assignment isn’t feasible, consider these alternatives:

  • Double Closing: You close with the seller first, then immediately resell to the buyer. This adds transaction costs but avoids disclosure of your profit margin.
  • Novation: The original contract is replaced with a new one between the seller and end buyer, often with the assignor stepping out of the deal entirely. This requires the consent of all parties.
  • Joint Ventures: Partner with another investor who funds and closes the deal, and share profits.

Each alternative offers varying degrees of anonymity, legal complexity, and profit margins, making it important to evaluate based on your goals and resources.

How to Find Buyers and Market Your Assignment

Finding end buyers for your assignment real estate deals is a critical step. Popular methods include:

  • Cash Buyer Lists: Build a list of repeat investors looking for discounted properties.
  • Online Marketplaces: Use platforms like Craigslist, Facebook Marketplace, and local real estate forums.
  • Real Estate Investor Meetings: Networking at REIA (Real Estate Investors Association) meetings can yield serious buyers.
  • Email Campaigns: Targeted emails to your list can create urgency and competition for your deals.

Importantly, be sure your marketing materials clearly state you are assigning a contract—not selling the property directly—and avoid making claims you can’t legally back up.

Common Use Cases for Assignment Real Estate Deals

Assignment contracts are frequently used by:

  • Real Estate Wholesalers: Individuals who specialize in connecting motivated sellers with eager buyers and profiting from the margin.
  • New Investors: Those who lack capital but want to break into real estate with low financial risk.
  • Buy-and-Hold Investors: Occasionally assign contracts for deals that no longer meet their investment criteria.
  • Flippers: If timelines, funding, or inspections reveal issues, flippers may assign a contract rather than walk away.

These contracts are especially useful in distressed property markets, where owners seek quick exits and traditional financing is difficult to secure.

Frequently Asked Questions

  1. What is an assignment in real estate?
    It’s a strategy where a buyer transfers their purchase rights under a real estate contract to another buyer, usually for a fee.
  2. Is an assignment contract the same as wholesaling?
    Assignment contracts are a common tool in wholesaling, though not all wholesaling requires assignments. Assignments are typically faster and lower risk.
  3. Do I need a license to assign contracts?
    It depends on your state. Some states require a real estate license for assignments, especially if you're doing them regularly.
  4. Can I market a property I don’t own?
    Only if your contract allows assignment and local laws permit it. You’re technically marketing the contract, not the property, but missteps can be legally risky.
  5. What happens if the buyer backs out?
    If you collected earnest money, you may keep it (depending on the contract). Otherwise, you may need to find another buyer quickly or risk defaulting.

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