Real estate wholesaling is a popular strategy for new investors who want to get their feet wet. The term "wholesaling" refers to the process of buying homes and reselling them quickly without making any significant repairs. One crucial aspect of this strategy is the assignment of contract, which allows the wholesaler to profit from the transaction without ever owning the property.
What is Assignment of Contract?
In simple terms, an assignment of contract in real estate is a legal agreement that allows the investor (or 'assignor') to transfer their rights and obligations of the property purchase contract to another party (or 'assignee'). This means that the assignee steps into the shoes of the assignor and completes the transaction with the original seller.
The assignor's primary role is to find a motivated seller, negotiate a purchase price, and then find a buyer willing to pay a higher price for the property. The difference between the contract price with the seller and the amount paid by the end buyer is the wholesaler's profit.
How Does it Work?
Here are the basic steps involved in an assignment of contract:
1. Find a Motivated Seller: The first step is to find a homeowner who wants to sell their property quickly. This could be due to various reasons such as financial distress, job relocation, divorce, or a need to liquidate assets.
2. Negotiate a Purchase Price: Once a motivated seller is identified, the wholesaler negotiates a purchase price and signs a purchase agreement with the seller. This agreement includes an "assignment clause" which gives the wholesaler the right to assign the contract to another buyer.
3. Find an End Buyer: The wholesaler then finds an end buyer who is willing to buy the property at a higher price. This could be a rehabber looking for a fix-and-flip opportunity, or a landlord seeking rental properties.
4. Assign the Contract: The wholesaler then executes an assignment agreement with the end buyer, transferring all rights and obligations of the original contract to them. The assignee pays an assignment fee to the wholesaler, which is typically the difference between the original purchase price and the price the end buyer agrees to pay.
5. Close the Deal: Finally, the deal is closed with the help of a title company or attorney. The original seller receives the agreed-upon price from the original contract, the end buyer gets the property, and the wholesaler walks away with the assignment fee.
How to Fill Out an Assignment of Contract
Download the Assignment of Contract for Free
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Legalities and Ethics
While the assignment of contract is a legitimate real estate strategy, it's not without controversy. Some people view wholesalers as middlemen who profit without adding value. However, ethical wholesalers can provide a valuable service by connecting motivated sellers with investors.
It's also important to note that the legality of contract assignment can vary by state. In some jurisdictions, you may need a real estate license to wholesale properties. Therefore, it's crucial to understand your local laws and regulations before getting started.
In conclusion, assignment of contract is a powerful tool in real estate wholesaling. It allows investors to profit from real estate transactions without needing to buy, own, or repair properties. As with any investment strategy, education and due diligence are vital to success.
Remember, the goal is to create win-win situations for all parties involved: a quick sale for the distressed seller, a good deal for the end buyer, and a fair profit for the wholesaler.