Today, I want to talk about an important tool for real estate investors, the real estate assignment contract.
The real estate assignment contract is used when wholesaling real estate and we like wholesaling because it’s quick, easy and (most importantly) can put big bucks in your pocket with relatively low risk!
In this post, we’ll discuss what assignment contracts are, cover the steps of the process of using it and discuss why they’re a good option for your business.
Assignment contracts are simple, really…
With an assignment contract, you have the ability to “assign” your rights to the contract with the seller over to your cash buyer and because YOU are the principal in the transaction you can release your rights for an “assignment fee”.
Bonus: You also don’t need a Realtor’s license to wholesale properties this way!
The only negative to using an assignment is that there is no such thing as privacy, because everyone involved will know how much you’re making on the deal. If major money is on the table, you can imagine how complicated or tense things might get.
A word to the wise – only use this method when you’re making less than $10,000 (or so) to avoid raised eyebrows from your buyer. (Use the double close method if you’re making more than $10k.) If you haven’t been keeping up with my previous posts, you can learn more about double closings here.
How The Real Estate Assignment Contract Works
There are 5 main steps in the assignment process:
- Find the motivated seller
- Get the contract
- Send the contract to title
- Find your buyer
- Assign the contract
- Get paid (Yeah…I added this one because it’s the most exciting step, of course!)
Now, let’s go through these steps one-by-one…
It’s not news that a truly motivated seller doesn’t just want to sell, they need to sell – and sell quickly for whatever reason.
When it comes to assignments, your seller to needs to sell, because there must be a sense of urgency. If your seller is in no rush to sell, you’ll probably want to consider another closing method.
Motivated and/or distressed sellers are out there. With the help of some of our powerful tools and resources, it’s now easier than ever to find them. Click here now and learn how the REI Trifecta can help you find more sellers and do more deals now!
Once you find your seller, it’s time to get the deal and you’ll want to have the paperwork ready.
“Can you find a contract online?”
Yes, but I wouldn’t suggest using it unless you have an attorney review it first to be sure all the critical language is included and that you’re protected. You want to move forward with confidence knowing you’re following local laws and customs.
Pro Tip: Every state has an approved Board of Realtors contract that can be used for putting properties under contract. However, be sure that the contract is assignable before using it in this case as many Board of Realtor contracts are not assignable.
You can change the language in the Realtor contract, hire an attorney to create a customized contract for you, or you can use the same contract I and many of my students have been using for years inside my “Purchase & Sale Agreement Line By Line” course. An old school method is to put the words “and or assigns” where the buyer is named. So it would read “ABC Real Estate Solutions, Inc. and-or assigns”. This works, but can raise questions in the eyes of the seller.
Next, you need to submit the contract to title, and the process will differ depending on your state. Typically, a title or closing company will run a title search to check property records. Think of them as a third party hired to ensure the deal is done properly.
Now comes the fun part – finding your end buyer…
You can try and search on sites like Craigslist or Facebook to find your buyer OR you can tap into a proven source of verified cash buyers all across the country whenever and wherever you need it. This source of proven cash buyers is called the Cash Buyer Data Feed. It’s a powerful system that gives you the option of cash buyers either statewide or nationwide depending on your needs. [Click here to check it out!]
Once you’ve found your buyer, be sure to require a non-refundable earnest money deposit to secure the deal, get the assignment agreement to the closing agent, let them do the work and on the day of closing….
…you get paid!
Why Assignment Contracts Are Ideal
Out of all the ways to close a deal – the one that’s simplest, least expensive, involves just one closing and keeps you out of the chain of title?
You got it…
But…if the seller is a bank, will they allow you to close using the assignment method?
Assignments work with private sellers. When you assign a contract, you’re really selling the contract. You are NOT the buyer or the seller of the property. You simply collect your assignment fee and walk away smiling.
Note: When dealing with bank sellers you can use transactional funding to get the deals done. Click here now and learn how to get up to $1,000,000 in transactional funds (without paying any fees or points).
I’ve talked about this before, but remember that you don’t need to go to closing.
In fact, it’s arguable when you’re doing an assignment if you even belong there! I mean, imagine the look on your seller’s face when the actual buyer walks in to closing instead of you…
Trust me, from personal experience, you don’t want to be there for that awkward moment, if it even happens. In many cases, sellers and buyers get their side of the closing done in advance and don’t go to the actual closing.
In the off chance that they do, and you’ve got a good title agent (one that’s experienced and investor-friendly), this won’t be an issue. When your seller realizes that you’re not the buyer, your title agent will be able to talk your seller off the ledge by reminding him/her that there’s a big check waiting and that the sooner the closing can proceed, the sooner he/she can collect.
Have your title agent mail or wire you your money and you’re set.
The Wrap Up
Remember these steps when closing with the assignment method:
Individual seller only – No Bank Owned REO’s
You’re not in the chain of title
Only one closing and one set of closing costs
No need to attend closing
Pro Tip: Do yourself a favor and make sure your seller is as serious as a pimple on prom night. Don’t get involved with sellers who are on the fence, and be sure to find a rock-solid title agent or closing attorney who has your back, and if you need a referral, we can help.
Any questions, concerns or comments on real estate assignment contracts? Chime in below because I love hearing from you!