Wholesale Real Estate Investing: Contract Assignment

Wholesale real estate investing is an integral part of a real estate investors business when they buy  properties from motivated sellers.  This means that they buy them at a price low enough that they can sell them at wholesale prices to other real estate investors.

 When you assign your right to buy a property from a seller to another person, usually a real estate investor, you have done a contract assignment.

 In other words, you change the buyer from yourself to the real estate investor for an assignment fee.

All the terms of the contract will remain when you assign the contract.

How does it work?
The following simple steps describe the process of assigning a contract

1)    Get the property under contract
 The first thing when you identify a good property is to put it under contract.  The contract must explicitly allow you to assign it.

 You can do this by putting "and or assigns", e.g. "My Company Name and or assigns".


If you exclude this little clause, you may be unable to get the contract assigned.   It is important to let the seller know that you might assign the contract to another real estate investor.

 I also let them know that I could get into partnership with another investor in this deal.   You need to make them understand that their interests are covered, and that nothing else changes in the contract. They also need to understand you will make a profit from the deal.

2)    Get title work done
 The closing agent is usually a title company or closing attorney.

3)    Get assignment contract signed
 You then sign a contract where you assign your right to buy the property to a real estate investor buyer.

 You must collect earnest money when you sign the contract.   This earnest money is paid to the title company.   Usually I credit the earnest money to the deal at closing; if they do not close the deal they stand to lose it.

4)    Close the deal
The new buyer then goes through the process of funding the transaction for closing.   When it closes, you get a check for the assignment fee.

Advantages and disadvantages of contract assignment
 In contract assignment, the need to close two transactions with two closing costs is eliminated.

 The assignment fee stated in the contract is what you walk home with.
 You must show the assignment fee in the contract.

 The contract fee also shows in the closing statement, meaning that all parties can see how much you make in the deal.

This means that some sellers or even buyers could develop cold feet when they think you are making a lot of money and back out of the deal.   Contract assignment is best when you are not making a lot of money from the deal. If I stand to make $5000 or more, I do simultaneous closing instead.

Some deals such REOs and most deals through Realtors cannot be assigned.   Such contracts specifically prohibit assignment of contract.

The biggest advantage is that you can make a deal happen with little to no cost and walk away with a profit, even when you stand to make little money.

Article Posted By : Simon Macharia Wholesale real estate investing requires that you sell your houses fast to keep it successful . Learn how an interactive real estate investing website can help you sell your properties faster by building your buyers list and using the power of social media to reach more buyers.