What is an Assignment Contract in Real Estate?
A real estate assignment contract is an agreement where the seller has signed a purchase contract to sell the property and then signs an assignment contract transferring that purchase contract to another buyer. This is most commonly used in connection with distressed properties, such as foreclosures or short sales. The advantage to the assignor is that they are under contract to buy the property and then sell it to the second buyer immediately thereafter. It creates no delay for the assignor but the benefit to the second buyer is simply a lower purchase price.
One reason the assignment contract is useful is the original buyer is entitled to the benefit of many of the terms in the agreement, such as seller’s payment of closing costs or other things that favor the buyer . The problem that can play out is when the buyer plans on selling to a second buyer before all those benefits are paid.
The assignment contract is simply the way of transferring the second buyer into the first buyer position so that that buyer receives the benefit of the contract including any seller paid costs. If the contract is done correctly, the first buyer simply pays the closing costs for the second buyer, therefore virtually nothing changes. In that scenario, the assignor collects a profit for what is commonly a very small time difference between the two closings.
These contracts are not uncommon to see in short sale transactions. Thus, when a buyer is making a purchase offer on the property, the first buyer will use the assignment contract to secure the property with the right to sell it to the second buyer after closing.
Elements of an Assignment Contract
Parties Involved: The contract outlines the involved parties, which, at a minimum, includes: the assignor (the original property owner) and assignee (the buyer) or the assignor and the end buyer.
Property Description: The property being assigned must be clearly identified. It is generally described by street address and often by parcel number, so that there is no ambiguity about the real estate being transferred. Some contracts have a place to insert a description of the property. Something to the effect of: "The property located at 123 Main Street, Orange County, California, APN 123-4567-890," for example.
Asset Purchase Price: The amount for which the contract has been assigned, usually marked as the purchase price from the assignor to the assignee.
Assignment Fee: The fee paid for the assignment. Often, an initial deposit (earnest money) is required to bind the contract. The agreement will state how that money is to be disbursed, and whether it is refundable under certain circumstances.
Terms and Conditions: Items such as whether the contract is subject to the sale of another property, how the contract can be assigned to another party, and any contingency terms that are included.
Closing Terms: Similar to how sale contracts specify how, when and where the sale will close, an assignment contract will have similar terms specifying how the assignment will close.
Benefits of Assignment Contracts
There are two main parties involved in a real estate assignment contract. An assignor is someone who makes an assignment. An assignee is someone who receives or takes on an assignment. Each of these parties has certain advantages to enjoy.
Benefits to an Assignor
The biggest benefit to the assignor is money for doing basically nothing. The contact usually includes a profit margin, or the difference between what you are getting for the property and what you agreed to sell it for. Depending on market conditions, this could amount to several thousand dollars.
Benefits to an Assignee
An assignment contract can get you into a property for less money than it would cost a buyer. This is done by getting a seller to enter into a contract with you, which is a discounted price, and then assigning that contract to the person who is actually going to purchase the property. Assume that the signor purchased the property for $20,000. The current market value is $28,000. You get a contract for $24K, then assign it to the person buying it for $28K. Your profit is $4K, but you only have to come up with $4K, rather than $8K. That’s a huge savings.
Risks to Keep in Mind
Some of the potential risks and legal considerations that can occur when using these types of contracts.
Contract enforceability. The sale of any property generally requires a signature from the seller in order to be legally binding. If such a requirement is not satisfied, the contract can be deemed invalid. For example, if the seller elects not to sign the original contract with the buyer, but instead provides a separate agreement that indicates consent, their approval can be questioned.
Seller approval . Most real estate agents prefer to involve the seller when developing the agreement in order to address any potential questions quickly. While the buyer may not want to be hampered by this process, it remains an important safeguard for the buyer to ensure that he or she can appeal to the seller for any conditions that may be stated within the agreement.
Market conditions. Using a real estate assignment contract can be a risky decision if your end goal is to flip a house quickly. Market fluctuations before or during the process can disrupt plans to sell the home and could make the transaction unprofitable.
An Example Real Estate Assignment Contract
Understanding a Sample Real Estate Assignment Contract
Many wholesalers use a sample real estate assignment contract when entering into a contract to purchase a piece of property. Doing so can save time on the front end because several components that should be included in the contract are already drafted. These components may include a provision allowing for assignment of contract and contingency provisions for buyer’s right to inspect, etc. When used wisely, these types of contracts can make the process move more smoothly.
Generally, an assignment contract of this type will have several components. It will include an introduction or preamble naming the people who are selling and assigning the property, the address of the property and stating what type of property it is. It will also include a provision detailing the assignment of contract to a new buyer, typically "in consideration of $1." The document may then recite a promise to sell and transfer the property and contain a description of the property by way of a legal description or reference to an attached copy of the property deed.
The contract may also include a closing date and provision in which the buyer agrees to purchase the property without a warranty of title. If there are exceptions to this, that may also be detailed. Many contracts also contain a warranty or statement that the person selling has good title to the property. The contract will usually provide that the buyer is getting the property in "as is" condition or "where is" except for any defects that are stated in writing. Finally, the contract will state who bears the expense of closing costs, what those costs are and when the sale should close.
Legal Considerations and Best Practices
When it comes to real estate contracts, the legal requirements for enforceability in common law are acceptance, consideration, and intent to create legal relations. Acceptance consists of an unequivocal, non-ambiguous agreement "in the mirror image" of the offer, and "meeting of the minds" on the terms. Consideration consists of something of value in exchange for a promise, and can be a promise to do something you are not legally obligated to do, or to pay a specific amount for something. An intention to create legal relations means that the parties intend for the contract to be legally binding and enforceable.
The statute of frauds requires real estate contracts to be in writing, signed by the parties and certain contracts also need to be recorded in the county office. The written contract should clearly include (among other things): If you want to sub-assign an already assigned real estate contract or a tract of land, you will also need to be conversant in the assignment contract as well. This real estate assignment contract is used to transfer the rights under a real estate purchase agreement from one party (the "assignor") to another party (the "assignee"). It is basically a bill of sale of a real property purchase agreement for monetary consideration. It is important to make sure that the property already has a contract or other document that adequately describes and grants or assigns the property to someone. If the deed does not offer an adequate description , or the property is not mentioned in the deed, it should be mentioned in a schedule to the deed so there is no mistake as to what is being purchased.
Additionally, an assignment must occur at or after the time that the assignor obtains equitable title, such as after he has an equitable interest in the property or has the equitable right to obtain title at some future date. The contract should contain a wording that the person making the assignment must have the right to assign the agreement, and ensure that he actually has that right. So if the contract you are assigning allows you to assign it, you would state something like "I hereby assign to the undersigned assignee all of my rights, title and interest in and to the purchase agreement between the undersigned Assignor and the undersigned Obligor attached hereto…" The assignment should be signed by the Assignor, Assignee, and Obligor, and should describe the contract being assigned.
Lastly, engaging a knowledgeable real estate attorney will provide you with the guidance and advice on your specific situation. He will understand the laws of your state, and how title is conveyed.