An assignment of contract in real estate allows a buyer (assignor) to transfer their purchase rights to another party (assignee) before the sale is finalized. It’s a common strategy used by real estate investors, particularly in wholesaling.
How Does an Assignment of Contract Work?
The process typically follows these steps:
1. Sign a Purchase Agreement: The assignor enters a contract to buy a property from the seller.
2. Assign the Contract: The assignor finds an assignee who wants to take over the purchase and transfers the contract to them.
3. Assignment Fee: The assignor charges a fee for facilitating the deal.
4. Closing: The assignee completes the sale with the seller, and the assignor steps out of the deal.
This approach allows the assignor to profit without needing to actually purchase or own the property.
Benefits of an Assignment of Contract
Low Capital Required: The assignor doesn’t need to buy the property, making it an accessible option for investors with limited funds (FortuneBuilders).
Quick Profits: Assignments can be done quickly, generating fast income without long-term commitment (Investopedia).
Potential Challenges
Legal Restrictions: Some contracts have a “non-assignment clause,” meaning the seller must approve any assignment.
Finding a Buyer: It’s crucial to secure an assignee who is willing to pay the assignment fee (The Balance).
Assignment of Contract vs. Double Closing
In an assignment, the assignor transfers the contract before closing. In a double closing, the assignor buys the property first and resells it. Assignments are simpler and cheaper but require a contract that allows for assignment (Investopedia).
Final Thoughts
Assignment of contract is a useful tool for investors who want to flip deals without significant capital. However, it’s essential to ensure that the contract allows for assignment and to understand the local laws.
References
FortuneBuilders, “What Is a Real Estate Assignment of Contract?”
Investopedia, “Assignment of Contract in Real Estate”
The Balance, “How to Use Contract Assignments in Real Estate”