Assignments: Pay Me Now, or Pay Me Later

Assignments: Pay Me Now, or Pay Me Later

When someone assigns a contract to purchase real estate to another person, a couple things are happening.  The original buyer becomes the buyer/assignor, and the secondary buyer becomes the buyer/assignee.  There is usually consideration being paid from the assignee to the assignor for the opportunity to step into the assignor’s shoes and complete the real estate transaction.  That consideration can be paid several ways.  It can be paid when the Assignment Agreement is executed, or sometimes it’s paid at the closing when the new buyer/assignee completes the transaction.  I’ve even seen instances when it’s done incremental in both situations, half now and half at closing.  Whichever way you choose to go, please make sure your paperwork is clearly written and you spell out what needs to happen for each instance.

If you are assigning a contract to a person with whom you have not done business in the past, and they are not looking to close in the immediate future, I strongly suggest you do a couple of things:

  • Demand satisfactory evidence as to their proof of funds and ability to close.
  • Obtain a significant portion of the assignment fee right then and there.

If you fail to do those two things, you may find you have assigned the contract to someone who lacks the ability to complete the transaction.

Based upon my previous emails on the subject of wholesaling, you should know that assignments are not my favorite way of concluding a real estate transaction; but, on occasion, they are necessary components.  If your entire real estate business is focused on assigning contracts to other buyers, then I believe you are really not a genuine investor, and there are some fundamental problems inside your business.  If, however, your real estate deals are a split between assignments and double closings (or more preferably, buy and hold), then my opinion changes.

In any situation, it is imperative that your Assignment Agreement be very carefully and specifically worded so that all parties to the transaction are aware of what is happening and who is stepping into whose shoes and completing the transaction. 

I must note that there is a growing move underway in some regulatory agencies west of the Mississippi in which they want the seller to acknowledge, in writing, that the assignment is occurring and consent, in writing, to the assignment fee being paid by the buyer/assignee to the assignor. It’s very important for you not only to be tuned in to what is going on in your real estate market, but what is happening in your market from a regulatory standpoint.