assignable purchase contract

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What Is an Assignable Contract?

Understanding assignable contracts, assignment of a futures contract, factors in the futures market, unwinding futures contracts, real estate assignment, example of an assignable contract.

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Assignable Contract: Overview, Factors, Example

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

An assignable contract is a provision allowing the holder of a contract to transfer or give away the obligations and rights of the contract to another party or person before the contract's expiration date. The assignee would be entitled to take delivery of the underlying asset and receive all of the benefits of that contract before its expiry. However, the assignee must also fulfill any obligations or requirements of the contract.

Assignability may be found in some options and futures contracts. There are also assignable contracts in the real estate market that allow the transfer of property.

Key Takeaways

• An assignable contract has a provision allowing the holder to give away the obligations and rights of the contract to another party or person before the contract's expiration date.
• The assignee would be entitled to take delivery of the underlying asset and receive all of the benefits of that contract before its expiry.
• An assignment agreement can allow a bank or a mortgage company to sell or assign an outstanding mortgage loan.

Assignable contracts provide a way for current contract holders to close out their position, locking in profits or cutting losses, before the expiration date of the contract. Holders may assign their contracts if the current market price for the underlying asset allows them to realize a profit.

As mentioned earlier, not all contracts have an assignment provision, which is contained in the contract's terms. Also, an assignment doesn't always take away the assignor's risk and liability , because the original contract could require a guarantee that—whether assigned or not—the performance of all terms of the contract must be completed as required.

Owners of assignable futures contracts may opt to assign their holdings instead of selling them in the open market via an exchange. A futures contract is an obligation stating a buyer must purchase an asset, or a seller must sell an asset at a preset price and a predetermined date in the future.

Futures are standardized contracts with fixed prices, amounts, and expiration dates. Investors can use futures to speculate on the price of an asset such as crude oil. At expiration, speculators will book an offsetting trade and realize a gain or loss from the difference in the two contract amounts.

If an investor holds a futures contract and the holder finds that the security has appreciated by 1% on or before the closing of the contract, then the contract holder may decide to assign the contract to a third party for the appreciated amount. The initial holder would be paid in cash, realizing the profit from the contract before its expiration date. However, a buyer of an assigned contract can take a loss by paying an above-market price and risk overpaying for the asset.

Most futures contracts do not have an assignment provision. If you are interested in buying or selling a contract, make sure to carefully check its terms and conditions to see if it is assignable or not. Some contracts may prohibit assignment while other contracts may require the other party in the contract to consent to the assignment.

It's important to note that an assignment may be void if the terms of the contract change substantially or violate any laws or public policy.

A futures contract might be assigned if there was an above-market offer from the third party in an illiquid market where bid and ask spreads were wide. The bid-ask spread is the difference between the buy and sell prices. The spreads can be wide meaning there's an additional cost being added to the prices because there's not enough product to satisfy the order at a reasonable price.

Liquidity exists when there are enough buyers and sellers in the market to transact business. If the market is illiquid, a holder might not be able to find a buyer for the contract, or there might be a delay in unwinding the position.

An investor looking to buy the futures contract might offer an amount higher than the current market price in an illiquid environment. As a result, the current contract holder can assign the contract and realize a profit, and both parties benefit. However, unwinding or selling the contract outright is the cleaner solution, and it also guarantees that all liabilities concerning the contract's obligations are discharged.

However, holders of futures contracts don't need to assign the contract to another investor when they can unwind or close the position through a futures exchange. The exchange, or its clearing agent, would handle the clearing and payment functions. In other words, the futures contract can be closed before its expiration. The holder would incur any gains or loss depending on the difference between the purchase and sale prices.

An investor who assigns a futures contract can realize a profit from the contract before its expiry.

An investor might receive an above-market price for assigning a contract in an illiquid market.

Most futures contracts are not assignable.

A buyer of an assigned contract can take a loss by paying an above-market price for the asset.

An assignment agreement can allow a bank or a mortgage company to sell or assign an outstanding mortgage loan. The bank may sell the mortgage loan to a third party. The borrower would receive notice from the new bank or mortgage company servicing the debt with information on payment submission.

The terms of the loan, such as interest rate and duration, will remain the same for the borrower. However, the new bank would receive all of the interest and principal payments. Aside from the name on the check, there should be little difference noticed by the borrower.

Banks will assign loans to remove them as a liability on their balance sheets and allow them to underwrite new or additional loans.

Let's say an investor entered into a futures contract that contains an assignable clause in June to speculate on the price of crude oil, hoping the price will rise by year-end. The investor buys a December crude oil futures contract at $40, and since oil is traded in increments of 1,000 barrels, the investor's position is worth $40,000.

By August, the price of crude oil has risen to $60, and the investor decides to assign the contract to another buyer because the buyer was willing to pay $65 or $5 above market. The contract is assigned to the second buyer for $65, and the original buyer earns a profit of $25,000 (($65-$40) x 1000).

The new holder assumes all responsibilities of the contract and can profit if crude oil is trading above $65 by year-end, but also can lose if the oil trades below $65 by year-end.

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Real Estate Assignment Contract

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Last updated April 17th, 2023

• Purchase Agreements »

A real estate assignment contract  allows a real estate buyer to transfer their purchasing rights and responsibilities to someone else before the closing date. Typically, the new buyer pays a fee to the original buyer for the assignment. The form specifies the amount and due date of the assignment fee (if applicable), as well as all other details of the transaction, including the new buyer’s  liabilities , payment requirements , and rights under the purchase agreement . 

Download:  PDF ,  Word (.docx) ,  OpenDocument

REAL ESTATE ASSIGNMENT CONTRACT

1. THE PARTIES . This Real Estate Assignment Contract (“Assignment”) is entered into on [MM/DD/YYYY] (“Effective Date”), by and between:

Assignor : [ASSIGNOR’S NAME] (“Assignor”) with a mailing address of [ADDRESS] , and

Assignee : [ASSIGNEE’S NAME] (“Assignee”) with a mailing address of [ADDRESS] .

The Assignor and Assignee are each referred to herein as a “Party” and, collectively, as the “Parties.”

2. ORIGINAL AGREEMENT . The Assignor is the purchasing party to that certain purchase and sale agreement, dated [MM/DD/YYYY] , for the real property located at [PROPERTY ADDRESS] , and as more particularly described therein (“Original Agreement”).

3. ASSIGNMENT . The Assignor hereby transfers, assigns, and sets over to the Assignee all contractual rights, title, interests, and obligations in and to the Original Agreement on the Effective Date, pursuant to the terms of the Original Agreement

4. CONSIDERATION . For the sum of any dollar amount stipulated herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree to the following: [DESCRIBE PAYMENT OR OTHER CONSIDERATION] .

5. ASSUMPTION . By executing this Assignment, the Assignee accepts and assumes the transfer and ownership of all liabilities, obligations, and claims that currently exist or may in the future regarding the Assignment. As of the Effective Date, the Assignee agrees to comply with and assume all terms, payments, conditions, covenants, and any other duties and obligations as part of this Assignment and those set forth in the Original Agreement.

6. REPRESENTATIONS . The Parties acknowledge that they have a full understanding of the terms of this Assignment. The Assignor further warrants and represents that they own the rights transferred in this Assignment and has prior consent to execute this Assignment under the terms of the Original Agreement or otherwise through the written consent of the selling party under the Original Agreement; in the latter case, the written and signed consent of said party shall be attached to this Assignment. The Parties agree to provide and complete any obligations under this Assignment and the Original Agreement.

Assignor Signature : ___________________ Date:  [MM/DD/YYYY] Print Name: [ASSIGNOR’S NAME]

Assignee Signature : ___________________ Date:  [MM/DD/YYYY] Print Name:  [ASSIGNEE’S NAME]

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Assignable Contract: Everything You Need to Know

An assignable contract is an agreement that lets the owner of a particular asset transfer the rights and obligations to someone new. 3 min read updated on January 01, 2024

Updated July 13, 2020:

An assignable contract is an agreement that lets the owner of a particular asset transfer the rights and obligations to someone new. This new owner will reap the benefits of the assets before the contract closes. In most cases, assignable contracts are used in the futures market. However, not every contract in the futures market is assignable, so you need to pay close attention if you are planning to invest in this way.

Examples of Assignable Contracts

To better understand how assignable contracts work, here are three examples that show how a contract holder can lock in a profit before the contract expires.

• Mary Beth is a coffee trader and has a contract to buy from a certain producer for a set price until the end of June. Because of poor growing conditions, the price of coffee has gone way up, meaning that Mary Beth is underpaying and can make a big profit if she sells her coffee purchasing rights. Therefore, she sells her contract to someone else, and this other party now holds the value of the contract until it expires in June.
• Another example is an investor that has a futures contract. If the security on this contract appreciates before the contract expires, the investor may wish to assign the contract to someone else. This way, they'll be able to make a profit on the appreciation.
• A third example is in the corn industry. If you have a contract to buy corn at a certain locked in price, and the cost of corn increases, you can easily sell your contract to someone else. They'll pay you in cash, and from that point forward, they'll be responsible for any responsibilities of the contract until it expires.

Assignable Contract and Real Estate Investments

Assignable contracts are a great tool in real estate investments because they allow you to pass your purchase rights along to anyone you might choose.

In a typical purchase contract , you'd be limited to rehabbing the home, renting it, flipping it, or other strategies that involve assuming ownership of the home.

However, with an assignable contract, you can immediately pass ownership to someone else without ever technically buying it yourself. This process means you'll be passing along your purchasing rights as well as any obligations outlined in the initial purchase contract. After transferring over all of this, you'll no longer be involved in the transaction at all. Whoever you assigned the contract will now be in charge of:

• Making sure the deal closes
• Actually buying the property
• Making any claims against the seller if there are problems

If you were looking to make a profit through an assignable contract, there is one downfall. You'll have to wait until the deal closes to collect your fee.

Therefore, it's crucial you choose buyers who are serious and ready to close. To make money off the deal, find a property you know someone will like and then charge them a referral fee for your involvement in the process.

This is a foolproof process, as you never have to put up any collateral or down-payment for the mortgage. Instead, all you have to do is pay a money deposit for the initial contract to go through.

Converting a normal real estate purchase contract into an assignable one is easy. All you have to do is add a few extra words to indicate the nature of the contract. For example, under the "Buyer" part, where you typically list your name, simply add the phrase "and/or assigns." That way, you can transfer ownership to anyone you'd like without having to alter or rewrite the contract.

Tips for Making the Most of Assignable Contracts in Real Estate

If you'd like to use the assignable contract method to make a profit , here are some tips to utilize.

• Know who your buyers are before you begin, as this lowers the inherent risk.
• Build an active investor buyer list so that when a property comes up, you have a good selection of candidates to offer it to.
• Include both rental property investors as well as flippers on your list.
• Learn to locate great property deals before they hit the general market.

If you need help with an assignable contract, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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• Assigning an Agreement of Purchase and Sale (Prior to Closing)
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By   Martin Rumack

September 3, 2016

What is an Assignment of an Agreement of Purchase and sale?

At its essence, an Assignment of an Agreement of Purchase and Sale – informally known as “flipping a home” – is a simple concept:  A buyer of a new home allows someone else to take over the purchase contract, which allows that person to buy that same home him or herself.   

More specifically, the original buyer enters into a formal Agreement of Purchase and Sale with a Builder, and then allows another person – who we will call the “new buyer” – to step into his or her shoes through what is legally known as an “Assignment” of that original Agreement or Offer to buy.  The new buyer pays the original buyer a higher price than what was set out in that original Agreement, with the difference begin the original buyer’s profit. All of this takes place after the original buyer has agreed to buy from the Builder, but  before the deal closes ; the original buyer never takes title to the property.   

This arises primarily with homes: For newly-built homes with typically long closing dates (e.g. often 18 months or more), an Assignment is particularly attractive in situations where the Builder has already sold all of the units in the development early on, but where there is still demand for soon-to-be-completed homes and new condominium units in the development.  The assignment of a new condominium unit is also interesting for similar reasons, although the time frame may be significantly longer depending on when the assignment occurs.  This puts the original buyer in position to make a profit by inflating the new price well above what he or she agreed to pay the Builder in the first place.   

And what is the benefit to the new buyer?  There can be several:

• The new buyer may be able to buy into a desirable neighbourhood at a time when there are no more units available to be purchased directly from the Builder;
• Even taking the original buyer’s profit into account, the assignment may give the new buyer a price advantage over other properties that are currently on the market; and
• Depending on the timing of the assignment, the new buyer may be position to choose finishes and make minor changes to the yet-to-be-built home.

Whatever the respective motivations of the original and new buyer, the assignment of an Agreement of Purchase and Sale has many specific features – and just as many potential pitfalls.  What follows is a discussion of some of the key points.

When Can An Agreement of Purchase and Sale Be Assigned?

Unlike the standard Toronto Real Estate Board (TREB) or Ontario Real Estate Association (OREA) agreements, many Builders’ own ( i.e.  customized) Agreements of Purchase and Sale contain a clause that generally prohibits the assignment of the contract outright – or else allows it only certain very strict conditions and in exchange for a significant fee payable to the Builder.     

In fact, the vast majority of new home or condominium-purchase agreements do not allow the original buyer to assign the contract to someone else and stipulate that any attempt by the buyer to do so, or to list the home for sale on the Multiple Listing Service (MLS) or otherwise, or else list the property for rent, will put the original buyer in breach of the Agreement.   This triggers the Builder’s right, with notice, to terminate the original Agreement, keep the original buyer’s deposit, and seek additional damages from him or her.  (And in most cases, the original buyer’s Agreement is “dead”;  i.e.  he or she cannot go back and try to complete the transaction as if no assignment had taken place).

All of this means that anyone who has agreed to purchase a home from a Builder should give careful consideration to, and should seek legal advice prior to signing the Agreement, or in the case of condominium units during the 10-day cooling-off period in order to determine whether it’s possible to assign the Agreement in the first place.

This in turn involves a careful review of the clauses in that Agreement.

Typical (and Not-So-Typical) Provisions:

As a practical matter, there are as many variations in these types of provisions as there are Builders.    

Many Agreements of Purchase and Sale will include a largely-standard “No Assignment” clause, which disentitles the original buyer from “directly or indirectly” taking any steps to “lease, list for sale, advertise for sale, assign, convey, sell, transfer or otherwise dispose of” the property or any interest in it.     

A potential exception – and this is important – arises if the Builder gives  prior written consent , although in the more draconian version of these kinds of contract, that consent may be “unreasonably and arbitrarily withheld” by the Builder, essentially on its whim.   In other words, the buyer is not allowed to deal with the property,  unless  the Builder pre-approves it in writing, but in many cases the Builder has no obligation to give that approval and may withhold it for any reason whatsoever, including unreasonable and arbitrary ones.

(With that said, the “No Assignment” clause in some Agreements will allow for express exceptions or situations where the Builder will not withhold consent, for example:  a) Assignments made to a member of the original buyer’s immediate family; or b) where the Builder has determined that a sufficient and satisfactory percentage of the available units have already been sold).

The bottom line is that the basic clause in an Agreement of Purchase and Sale may or may not allow for the assignment of the Agreement to a new buyer, and if it is allowed, it will be subject to specified conditions such as obtaining the Builder’s written consent.  Most Agreements will embellish this basic clause by adding further written stipulations such as:

• Having both the original buyer and the new buyer sign an Assignment Agreement that has been drafted by the Builder;
• Mandating the original buyer will not assign the Agreement until the Builder has managed to sell a certain percentage of the units in the overall development (e.g. 85 or 90%), and even then it must be with the Builder’s written consent as usual;
• Requiring the original buyer to pay a fee to the Builder of (for example) $5,000 plus taxes as part of obtaining the Builder’s consent to the assignment;
• Requiring the original buyer to pay another fee plus taxes to the Builder’s lawyer (ostensibly as a sort of “legal processing fee”);
• Getting the pre-approval of any lending institution or mortgagee that is providing funding to the Builder for construction or otherwise;
• Assuming the Builder agrees to the assignment in the first place, prohibiting any further assignments of the offer by the new buyer to any subsequent party;
• Confirming that the breach of any of the original buyer’s promises in relation to how and when an assignment can occur will be considered a breach of the whole agreement (and one that cannot be remedied); and
• Requiring the original buyer to confirm in writing that the property is not being purchased for short-term speculative purposes.
• Note that even if the Agreement of Purchase and Sale does not expressly allow or provide for it in writing, some Builders will permit an original buyer to make an assignment nonetheless.  This is because it is always in the Builder’s discretion to give up (usually for a fee) its right to technically insist on the purchase going ahead with the original buyer.

Getting the Builder’s Consent

It’s important to remember that, initially, the original buyer and the Builder had a valid legal contract in place that obliged the buyer to purchase a home or condominium unit from the Builder.    That original buyer, for whatever reason – whether it’s a change of circumstances (such as a change in a marital situation, job transfer to another city, province or country; birth of children resulting in a home/condominium unit being too small for the buyer), cold feet, or simply the desire to make a profit – has subsequently decided to “sell” that right to buy to the new buyer.    

To protect the Builder, the Assignment will contain clauses that are designed to safeguard the Builder’s rights.  The most important one is that, as discussed, the Builder must give its written consent to the Assignment.  This will often involve specific Builder-imposed requirements, fees and forms which must be completed.

Once consent has been obtained, there may be additional restrictions on the manner in which the original owner can market the property.  For example, some Builders will insist that the property is not to be listed on MLS (where it may be competing with the Builder’s own listings for still-unsold home and units in the same development); if the original owner does so nonetheless, it will be tantamount to a breach of the Agreement of Purchase and Sale which could entitle the Builder to damages, or rescission of the Agreement of the Purchase and Sale while retaining the deposits paid, as well as the monies paid for extras.

However, aside from any marketing / advertising restrictions that may be imposed, the original buyer must clearly indicate in any listing that it is an assignment of an Agreement of Purchase and Sale, not merely an ostensible sale from the original buyer.

Continuing Liability After Assignment

One key provisions in the Agreement of Purchase and Sale – and one that is easy to overlook – may significantly impact whether an original buyer will want to assign his or her agreement at all.

Even though the original buyer has essentially transferred his or her right to buy the property to the new buyer, the original buyer is not fully off-the-hook.  Rather, under the terms of the Assignment document, the original buyer can remain liable to go through with the contract if the new buyer does not complete the transaction with the Builder.

This written obligation appears in the original buyer’s Agreement of Purchase and Sale, and is couched in phrases that give the buyer continuing liability for the “covenants, agreements, and obligations” contained the original agreement.  But the net effect is that the original buyer remains fully liable should the agreement between the Builder and the new buyer collapse.  The Agreement may also stipulate that the assignee, meaning the person receiving the benefit of the assignment (i.e. the new buyer) must sign an “assumption covenant” which creates a binding contract between the new buyer and the Builder.

(Incidentally, in contrast some Builder’s agreements quite conveniently allow the Builder itself to freely assign the agreement to any other Builder registered with Tarion, which assignment completely releases the Builder from its obligations.)

The original buyer’s continuing liability under the Assignment Agreement is a major drawback in these types of arrangements.   The original buyer always has to balance the risks and rewards inherent in this scenario.

Documenting the Transaction

Assuming that the assignment of an offer is even permitted by the Builder, then (as with all contracts) it must be documented to reflect and protect the legal right of the parties.

The technical aspects of an assignment require more than simply taking the original buyer’s Agreement of Purchase and Sale with the Builder, scratching out his or her name, and replacing it with the new buyer.   (Although, in some cases people do try to “squeeze in” assignment-of-offer terminology into a new Agreement of Purchase and Sale made out in the new buyer’s name – but this is definitely NOT recommended).

Rather, a properly-documented transaction makes reference to the Agreement of Purchase and Sale between the original buyer and the Builder, but adds a separate document called an “Assignment of Agreement of Purchase and Sale.”  The Ontario Real Estate Association (OREA) provides a standard form that can be used, although in many cases those Builders who permit Assignments will insist that the original buyer and the new buyer use the Builder’s customized assignment forms, rather than the OREA standardized version.

The Specifics of the Deal –Who Pays What?

Recouping the Original Buyer’s Costs

At the point where the Assignment is being negotiated, the original buyer has typically paid a deposit to the Builder, may have pre-paid for certain upgrades and extras, and has a large balance owing.  This means that in the course of striking a deal to achieve the assignment, the original buyer should give some serious thought to the various costs, fees, pre-paid deposits, and tax repercussions of the deal, and how these should be reflected in the price that he or she will want the new buyer to pay under the Assignment Agreement.   The timing of the payment(s) will also be a consideration.

For both original buyer and new buyer who are considering an assignment arrangement, here are some of the questions to ask:

• Does the price to be paid by the new buyer include any fee that the Builder is charging in exchange for the original buyer’s right to assign the Agreement of Purchase and Sale?
• Does it include any deposits paid by the original buyer to the Builder, after the Agreement was signed?  Does it include any interest that has been earned on those deposits?
• Does it clearly state that the new buyer will take over the entire contract, including the adjustments that are to be paid to the Builder on closing?  Or are those adjustments to be split between new and original buyer?
• Does the price include money paid by the original buyer for extras and upgrades?
• Are there any additional deposits that are still owing to the Builder, under the original agreement?
• Who is responsible to pay the additional fee ( i.e.  the Builder-imposed fee) in exchange for the Builder giving consent?  Usually, this will be the original buyer, but the parties may negotiate otherwise.
• Does the new buyer agree to take on responsibility under the original Agreement for making additional deposit payments until the final closing date (which may still be months or even years away)?
• Does the new buyer have a full understanding of the amount of all the adjustments that must be paid to the Builder pursuant to the original Agreement?
• If the original buyer has negotiated any special financial incentives into the Agreement of Purchase and Sale that has been reached with the Builder, have these been addressed in terms of whether the new buyer will receive the benefit of them?

In any case, the final purchase price payable from the new buyer to the original buyer will typically be made up of:

• The outstanding balance owed to the Builder by the original buyer, that will now be payable by the new buyer;
• The total deposits already paid by the original buyer to the Builder;
• The total payments already paid by the original buyer to the Builder for any upgrades, extras, etc.; and
• The profit that the original buyer stands to make in the deal.

Deposits, and Interest on Deposits

The treatment of deposits, and the interest they may have earned, merits a brief separate discussion.

Under virtually all Agreements of Purchase and Sale with Builders, the original buyer will be required to pay a series of deposits to the Builder, starting with the initial deposit paid when the Agreement is signed, and on a set payment schedule thereafter.   The total of those deposits can be significant.

Once the Agreement has been assigned to the new buyer, how those deposits are treated will form part of the negotiations.  Typically, the original buyer will get those deposits back from the new buyer as part of the overall purchase price of the assignment transaction; he or she will usually receive them at the time the assignment agreement is entered into and the Builder has consented to the assignment.

The potential problem with an Assignment Agreement is financing. The original buyer will want his deposit funds returned before closing, but if the new buyer does not have funds on-hand, he or she may find that financing is very difficult to obtain because banks do not advance mortgage funds at the time an Assignment Agreement is entered into; rather, the financial institution will provide funds only on final closing.  This can serve as a roadblock to the new buyer’s ability to repay the deposits and potentially to embark on the transaction at all.

The question of who is entitled to the Interest on any deposits pre-paid to the Builder is also a topic for the original and new buyers to discuss.    In many cases, the interest will be only a small amount (if any) and may be credited to the new buyer, rather than the original one.  However, in cases where the original buyer has paid significant deposits over time, and where larger interest amounts have accrued, the parties may want to negotiate a different outcome.

Land Transfer Tax

Land Transfer Tax is also an important consideration in Assignment Agreement arrangements.

When negotiating the deal, the original buyer and the new buyer must discuss the structure of the deal between them, to ascertain the exact selling price on which the Land Transfer Tax (and any Municipal Land Transfer Tax) should be payable  i.e . whether it is the original buyer’s price with the Builder (net of HST and the HST New Housing Rebate, which is discussed below), or whether it’s the newly-inflated price being paid by the new buyer under the Assignment.

Generally speaking, it will be the latter, although in some assignment arrangements the parties have attempted to structure it so that they pay the Land Transfer Tax based on the lower initial price asked by the Builder, while taking the position that difference between that and the increased price is merely the “fee” paid to acquire the original Agreement of Purchase and Sale entered into with the Builder (thus avoiding having the tax calculated on the higher sale price).

In any case, once the Assignment Agreement is reached, it will be the new buyer who is obliged to pay Land Transfer Tax and any Municipal Land Transfer Tax on closing, not the original buyer.

HST and the HST New Housing Rebate

The issue of how HST is to be treated in an assignment scenario is a crucial one, but is fraught with pitfalls.

The first issue is how HST on the transaction should be calculated.   Because the new buyer’s price will inevitably be higher than the one the original buyer agreed to pay to the Builder, there is an important issue as to whether the difference – meaning the original buyer’s profit – should be subject to HST (and if so, who will pay it in the transaction).

This determination hinges on whether the assignment is a “taxable supply” under the tax legislation, and on whether the original buyer can be considered or deemed a so-called “builder” of the home for HST purposes.    This, in turn, involves a number of complex legal concepts and factual findings – including the intentions of the original buyer as to whether the home is going to be a primary residence.

Next, there is the issue of the HST New Housing Rebate.   In a typical scenario, the original buyer may have been entitled to the HST New Housing Rebate, based on meeting numerous qualifying requirements and stipulations. However, once he or she assigns the Agreement, that eligibility is obviously lost because he or she is no longer taking title to the home on closing.   Only one HST New Housing Rebate application per dwelling can be filed.

But once there has been an assignment, it is the new buyer’s circumstances that will determine whether the opportunity for an HST Rebate exists.   He or she will have to meet the stipulated legislated requirements, and may either apply directly to the Canada Revenue Agency (CRA), or arrange with the Builder to have the rebate amount credited right at closing.

(Note that the new buyer may want to take steps to protect his or her position in this regard.  For example, when negotiating the Assignment Agreement, the new buyer should make the agreement conditional on receiving written confirmation from the Builder that any HST New Housing Rebate will be credited to him or her on closing (assuming that the qualifying requirements are otherwise met).    Otherwise, if this commitment is not in writing then the Builder, being entitled to exercise its discretion on whether to credit the buyer with the rebate amount on Final Closing, can withhold it and force the new buyer to apply to CRA directly after closing.  Obtaining this commitment in writing is especially important given the likely lack of prior dealing between the Builder and the new buyer.

Other Things To Consider

Who is Responsible for the Documentation?

In addition to ascertaining whether the original buyer or the new buyer will pay for certain items, it is also important to determine – in advance – which of them will take care of arranging the documentation.  The questions to ask:

• Who will prepare the documents needed to achieve the Assignment?  And who will bear the cost?
• Will the Builder’s lawyer prepare the Builder’s needed consent to the Assignment?
• Since the new buyer cannot renegotiate any of the provisions of the Agreement that the original buyer entered into with the Builder, are any of those terms objectionable, and if so, how will they be resolved and who will bear the cost?

As discussed, the Assignment Agreement will be conditional on the Builder giving its consent.  From the new buyer’s standpoint, it should also be made conditional on him or her giving close review to the original Agreement of Purchase and Sale (as signed by the original buyer), the Assignment Agreement, as well as any amendments, waivers, notices (and for condominium purchases, the Disclosure Statement) etc.  If for no other reason, it will give the new buyer a chance to consider the specific list of adjustments for which he or she will be responsible to pay on closing.  Needless to say, this review should be undertaken with the guidance of an experienced lawyer.

Once the terms of the assignment are settled and the Builder’s written consent has been obtained, the Assignment Agreement must be drafted and is attached to the original Agreement of Purchase and Sale that the original buyer entered into with the Builder.   

Incidentally, the Builder may have certain requirements that must be incorporated into the process and accommodated as well.    For example, the Builder will require the new buyer to provide I.D., and will need confirmation that he or she has the financing required to close in place.

Tarion Registration

When negotiating the assignment arrangement, the original and new buyers must be aware of the impact of the New Home Warranty Program as administered by Tarion, particularly if the home being “flipped” is a condominium unit.

There may be financial issues for the new buyer to work out before the deal can go ahead.

As usual, the transaction may be conditional on financing, which will be arranged on the higher price that the new buyer has agreed to pay.   However, since some mortgage brokers may be unfamiliar with financing an assignment transaction, getting approval for the new buyer’s purchase may be challenging.   This is something that needs to be investigated long before the original buyer and the new buyer start their negotiations in earnest.

A final issue to be negotiated is who is paying the commission with respect to the Assignment Agreement transaction.  This includes consideration of the specific commission rate, together with the details on how and when the commission gets paid.

While an Assignment Agreement can be beneficial to both the original and the new buyer – and even to the Builder (in extra fees) there are many issues to be addressed and negotiate.

As an agent, make sure your client obtains legal advice prior to finalizing any agreement to assign the original Agreement of Purchase and Sale.

Be careful… be aware… and think!”

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How To Navigate The Real Estate Assignment Contract

What is assignment of contract?

Assignment of contract vs double close

How to assign a contract

Assignment of contract pros and cons

Even the most left-brained, technical real estate practitioners may find themselves overwhelmed by the legal forms that have become synonymous with the investing industry. The assignment of contract strategy, in particular, has developed a confusing reputation for those unfamiliar with the concept of wholesaling. At the very least, there’s a good chance the “assignment of contract real estate” exit strategy sounds more like a foreign language to new investors than a viable means to an end.

A real estate assignment contract isn’t as complicated as many make it out to be, nor is it something to shy away from because of a lack of understanding. Instead, new investors need to learn how to assign a real estate contract as this particular exit strategy represents one of the best ways to break into the industry.

In this article, we will break down the elements of a real estate assignment contract, or a real estate wholesale contract, and provide strategies for how it can help investors further their careers. [ Thinking about investing in real estate? Register to attend a FREE online real estate class and learn how to get started investing in real estate. ]

What Is A Real Estate Assignment Contract?

A real estate assignment contract is a wholesale strategy used by real estate investors to facilitate the sale of a property between an owner and an end buyer. As its name suggests, contract assignment strategies will witness a subject property owner sign a contract with an investor that gives them the rights to buy the home. That’s an important distinction to make, as the contract only gives the investor the right to buy the home; they don’t actually follow through on a purchase. Once under contract, however, the investor retains the sole right to buy the home. That means they may then sell their rights to buy the house to another buyer. Therefore, when a wholesaler executes a contact assignment, they aren’t selling a house but rather their rights to buy a house. The end buyer will pay the wholesale a small assignment fee and buy the house from the original buyer.

The real estate assignment contract strategy is only as strong as the contracts used in the agreement. The language used in the respective contract is of the utmost importance and should clearly define what the investors and sellers expect out of the deal.

There are a couple of caveats to keep in mind when considering using sales contracts for real estate:

Contract prohibitions: Make sure the contract you have with the property seller does not have prohibitions for future assignments. This can create serious issues down the road. Make sure the contract is drafted by a lawyer that specializes in real estate assignment contract law.

Property-specific prohibitions: HUD homes (property obtained by the Department of Housing and Urban Development), real estate owned or REOs (foreclosed-upon property), and listed properties are not open to assignment contracts. REO properties, for example, have a 90-day period before being allowed to be resold.

What Is An Assignment Fee In Real Estate?

An assignment fee in real estate is the money a wholesaler can expect to receive from an end buyer when they sell them their rights to buy the subject property. In other words, the assignment fee serves as the monetary compensation awarded to the wholesaler for connecting the original seller with the end buyer.

Again, any contract used to disclose a wholesale deal should be completely transparent, and including the assignment fee is no exception. The terms of how an investor will be paid upon assigning a contract should, nonetheless, be spelled out in the contract itself.

The standard assignment fee is $5,000. However, every deal is different. Buyers differ on their needs and criteria for spending their money (e.g., rehabbing vs. buy-and-hold buyers). As with any negotiations , proper information is vital. Take the time to find out how much the property would realistically cost before and after repairs. Then, add your preferred assignment fee on top of it.

Traditionally, investors will receive a deposit when they sign the Assignment of Real Estate Purchase and Sale Agreement . The rest of the assignment fee will be paid out upon the deal closing.

Assignment Contract Vs Double Close

The real estate assignment contract strategy is just one of the two methods investors may use to wholesale a deal. In addition to assigning contracts, investors may also choose to double close. While both strategies are essentially variations of a wholesale deal, several differences must be noted.

A double closing, otherwise known as a back-to-back closing, will have investors actually purchase the home. However, instead of holding onto it, they will immediately sell the asset without rehabbing it. Double closings aren’t as traditional as fast as contract assignment, but they can be in the right situation. Double closings can also take as long as a few weeks. In the end, double closings aren’t all that different from a traditional buy and sell; they transpire over a meeter of weeks instead of months.

Assignment real estate strategies are usually the first option investors will want to consider, as they are slightly easier and less involved. That said, real estate assignment contract methods aren’t necessarily better; they are just different. The wholesale strategy an investor chooses is entirely dependent on their situation. For example, if a buyer cannot line up funding fast enough, they may need to initiate a double closing because they don’t have the capital to pay the acquisition costs and assignment fee. Meanwhile, select institutional lenders incorporate language against lending money in an assignment of contract scenario. Therefore, any subsequent wholesale will need to be an assignment of contract.

Double closings and contract assignments are simply two means of obtaining the same end. Neither is better than the other; they are meant to be used in different scenarios.

Flipping Real Estate Contracts

Those unfamiliar with the real estate contract assignment concept may know it as something else: flipping real estate contracts; if for nothing else, the two are one-in-the-same. Flipping real estate contracts is simply another way to refer to assigning a contract.

Is An Assignment Of Contract Legal?

Yes, an assignment of contract is legal when executed correctly. Wholesalers must follow local laws regulating the language of contracts, as some jurisdictions have more regulations than others. It is also becoming increasingly common to assign contracts to a legal entity or LLC rather than an individual, to prevent objections from the bank. Note that you will need written consent from all parties listed on the contract, and there cannot be any clauses present that violate the law. If you have any questions about the specific language to include in a contract, it’s always a good idea to consult a qualified real estate attorney.

When Will Assignments Not Be Enforced?

In certain cases, an assignment of contract will not be enforced. Most notably, if the contract violates the law or any local regulations it cannot be enforced. This is why it is always encouraged to understand real estate laws and policy as soon as you enter the industry. Further, working with a qualified attorney when crafting contracts can be beneficial.

It may seem obvious, but assignment contracts will not be enforced if the language is used incorrectly. If the language in a contract contradicts itself, or if the contract is not legally binding it cannot be enforced. Essentially if there is any anti-assignment language, this can void the contract. Finally, if the assignment violates what is included under the contract, for example by devaluing the item, the contract will likely not be enforced.

How To Assign A Real Estate Contract

A wholesaling investment strategy that utilizes assignment contracts has many advantages, one of them being a low barrier-to-entry for investors. However, despite its inherent profitability, there are a lot of investors that underestimate the process. While probably the easiest exit strategy in all of real estate investing, there are a number of steps that must be taken to ensure a timely and profitable contract assignment, not the least of which include:

Find the right property

Acquire a real estate contract template

Submit the contract

Assign the contract

Collect the fee

1. Find The Right Property

You need to prune your leads, whether from newspaper ads, online marketing, or direct mail marketing. Remember, you aren’t just looking for any seller: you need a motivated seller who will sell their property at a price that works with your investing strategy.

The difference between a regular seller and a motivated seller is the latter’s sense of urgency. A motivated seller wants their property sold now. Pick a seller who wants to be rid of their property in the quickest time possible. It could be because they’re moving out of state, or they want to buy another house in a different area ASAP. Or, they don’t want to live in that house anymore for personal reasons. The key is to know their motivation for selling and determine if that intent is enough to sell immediately.

With a better idea of who to buy from, wholesalers will have an easier time exercising one of several marketing strategies:

Direct Mail

Real Estate Meetings

Local Marketing

2. Acquire A Real Estate Contract Template

Real estate assignment contract templates are readily available online. Although it’s tempting to go the DIY route, it’s generally advisable to let a lawyer see it first. This way, you will have the comfort of knowing you are doing it right, and that you have counsel in case of any legal problems along the way.

One of the things proper wholesale real estate contracts add is the phrase “and/or assigns” next to your name. This clause will give you the authority to sell the property or assign the property to another buyer.

You do need to disclose this to the seller and explain the clause if needed. Assure them that they will still get the amount you both agreed upon, but it gives you deal flexibility down the road.

3. Submit The Contract

Depending on your state’s laws, you need to submit your real estate assignment contract to a title company, or a closing attorney, for a title search. These are independent parties that look into the history of a property, seeing that there are no liens attached to the title. They then sign off on the validity of the contract.

4. Assign The Contract

Finding your buyer, similar to finding a seller, requires proper segmentation. When searching for buyers, investors should exercise several avenues, including online marketing, listing websites, or networking groups. In the real estate industry, this process is called building a buyer’s list, and it is a crucial step to finding success in assigning contracts.

Once you have found a buyer (hopefully from your ever-growing buyer’s list), ensure your contract includes language that covers earnest money to be paid upfront. This grants you protection against a possible breach of contract. This also assures you that you will profit, whether the transaction closes or not, as earnest money is non-refundable. How much it is depends on you, as long as it is properly justified.

5. Collect The Fee

Your profit from a deal of this kind comes from both your assignment fee, as well as the difference between the agreed-upon value and how much you sell it to the buyer. If you and the seller decide you will buy the property for $75,000 and sell it for $80,000 to the buyer, you profit $5,000. The deal is closed once the buyer pays the full $80,000.

Assignment of Contract Pros

For many investors, the most attractive benefit of an assignment of contract is the ability to profit without ever purchasing a property. This is often what attracts people to start wholesaling, as it allows many to learn the ropes of real estate with relatively low stakes. An assignment fee can either be determined as a percentage of the purchase price or as a set amount determined by the wholesaler. A standard fee is around $5,000 per contract.

The profit potential is not the only positive associated with an assignment of contract. Investors also benefit from not being added to the title chain, which can greatly reduce the costs and timeline associated with a deal. This benefit can even transfer to the seller and end buyer, as they get to avoid paying a real estate agent fee by opting for an assignment of contract. Compared to a double close (another popular wholesaling strategy), investors can avoid two sets of closing costs. All of these pros can positively impact an investor’s bottom line, making this a highly desirable exit strategy.

Assignment of Contract Cons

Although there are numerous perks to an assignment of contract, there are a few downsides to be aware of before searching for your first wholesale deal. Namely, working with buyers and sellers who may not be familiar with wholesaling can be challenging. Investors need to be prepared to familiarize newcomers with the process and be ready to answer any questions. Occasionally, sellers will purposely not accept an assignment of contract situation. Investors should occasionally expect this, as to not get discouraged.

Another obstacle wholesalers may face when working with an assignment of contract is in cases where the end buyer wants to back out. This can happen if the buyer is not comfortable paying the assignment fee, or if they don’t have owner’s rights until the contract is fully assigned. The best way to protect yourself from situations like this is to form a reliable buyer’s list and be upfront with all of the information. It is always recommended to develop a solid contract as well.

Know that not all properties can be wholesaled, for example HUD houses. In these cases, there are often anti-assigned clauses preventing wholesalers from getting involved. Make sure you know how to identify these properties so you don’t waste your time. Keep in mind that while there are cons to this real estate exit strategy, the right preparation can help investors avoid any big challenges.

Assignment of Contract Template

If you decide to pursue a career wholesaling real estate, then you’ll want the tools that will make your life as easy as possible. The good news is that there are plenty of real estate tools and templates at your disposal so that you don’t have to reinvent the wheel! For instance, here is an assignment of contract template that you can use when you strike your first deal.

As with any part of the real estate investing trade, no single aspect will lead to success. However, understanding how a real estate assignment of contract works is vital for this business. When you comprehend the many layers of how contracts are assigned—and how wholesaling works from beginning to end—you’ll be a more informed, educated, and successful investor.

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Pitfalls Concerning Assignment of Purchase Agreements

Over the years, we have been contacted by many clients regarding purchase party defaults, after having permitted the initial buyer under a purchase contract to assign the agreement to a newly – created buyer affiliate or unrelated, third party assignee. As a result of not seeking legal advice regarding a buyer’s right to assign purchase agreement prior to the execution of the contract, two problems often result: 1) a shell purchasing entity is substituted as the buyer, and 2) the original buyer, which normally has assets, is now relieved of its obligations under the purchase agreement.

Unfortunately, prior to the close of escrow, if the new shell purchasing entity defaults on its obligations, and the seller seeks to recover the initial deposit based upon breach of contract, the seller is often left with less than a full recovery. When the replacement purchasing entity is a shell company with no assets, the seller may be unable to fully recoup its expenses, including attorney fees and escrow and title cancellation expenses.  Furthermore, even if a legal judgment is obtained against the purchasing assignee entity, it is often worthless because the purchaser has no assets.

Why Legal Advice Should be Sought Regarding the Buyer’s Right to Assign the Purchase Agreement

Anticipating that this issue may occur, we draft assignment provisions in the purchase agreement prior to signing that require two things. First, any newly – formed affiliate assignee buyer must expressly assume, in writing, all obligations of the original buyer under the purchase agreement. This includes the obligation to pay all costs and expenses (such as attorneys’ fees and escrow and title cancellation fees) resulting from any pre-closing default by the new assignee purchaser. Second, the provision should state that any such assignment to a new buying entity will NOT relieve the original buyer of its obligations under the purchase contract.

By doing so, the seller will have a remedy against both the newly – formed defaulting assignee and the original purchaser. The seller, therefore, can pursue both entities for the initial deposit and if, upon default, the new buyer refuses to release the initial deposit from escrow, the seller can sue both entities for recovery of the initial deposit and all costs and expenses (including attorneys’ fees, cancellation expenses and interest).

Additionally, the judgment will be “joint and several,” meaning that the seller can recover from either entity, permitting the seller to concentrate its collection efforts against the original purchaser (which has assets), rather than wasting time and money pursuing the shell entity.

The aggrieved seller can also prevent the shell purchaser simply walking away from the transaction without liability for the additional costs and expenses incurred due to the breach of the purchase agreement. The seller can avoid being blackmailed into settling for only a portion of the initial deposit in order to avoid incurring the cost, expense and delay of suing the shell assignee.

Other Benefits of Properly Drafting an Assignment Provision

Proper drafting of the assignment provision also can avoid an even worse scenario: one in which a defaulting assignee buyer files a lis pendens on the property. In such a case the seller could be faced with tremendous legal expenses required to remove the lis pendens – none of which will be recoverable from the newly – formed shell assignee buyer, which has no assets. We also recommend that our clients include an increase in the initial deposit following waiver of contingencies and/or the release of the initial deposit upon the buyer’s waiver of contingencies.

Having provided over three decades of legal advice and counsel to our clients, the lawyers at Narvid Scott are well – versed in avoiding potential pitfalls for the unwary. While we certainly cannot guarantee the elimination of all problems, our experience minimizes our clients’ risk and exposure. By contacting Narvid Scott before the letter of intent or negotiations for the sale or purchase commence, we can better protect our clients.

Remember: Before executing your next purchase agreement (whether as a buyer or purchaser) or better yet, before you even negotiate the Letter of Intent, I would be happy to review your transaction and provide effective and efficient advice and counsel.

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Michael scott, site search, practice areas.

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Assignment of Contract

Jump to section, what is an assignment of contract.

An assignment of contract is a legal term that describes the process that occurs when the original party (assignor) transfers their rights and obligations under their contract to a third party (assignee). When an assignment of contract happens, the original party is relieved of their contractual duties, and their role is replaced by the approved incoming party.

How Does Assignment of Contract Work?

An assignment of contract is simpler than you might think.

The process starts with an existing contract party who wishes to transfer their contractual obligations to a new party.

When this occurs, the existing contract party must first confirm that an assignment of contract is permissible under the legally binding agreement . Some contracts prohibit assignments of contract altogether, and some require the other parties of the agreement to agree to the transfer. However, the general rule is that contracts are freely assignable unless there is an explicit provision that says otherwise.

In other cases, some contracts allow an assignment of contract without any formal notification to other contract parties. If this is the case, once the existing contract party decides to reassign his duties, he must create a “Letter of Assignment ” to notify any other contract signers of the change.

The Letter of Assignment must include details about who is to take over the contractual obligations of the exiting party and when the transfer will take place. If the assignment is valid, the assignor is not required to obtain the consent or signature of the other parties to the original contract for the valid assignment to take place.

Check out this article to learn more about how assigning a contract works.

Contract Assignment Examples

Contract assignments are great tools for contract parties to use when they wish to transfer their commitments to a third party. Here are some examples of contract assignments to help you better understand them:

Anna signs a contract with a local trash company that entitles her to have her trash picked up twice a week. A year later, the trash company transferred her contract to a new trash service provider. This contract assignment effectively makes Anna’s contract now with the new service provider.

Hasina enters a contract with a national phone company for cell phone service. The company goes into bankruptcy and needs to close its doors but decides to transfer all current contracts to another provider who agrees to honor the same rates and level of service. The contract assignment is completed, and Hasina now has a contract with the new phone company as a result.

Here is an article where you can find out more about contract assignments.

Benjamin W.

Assignment of Contract in Real Estate

Assignment of contract is also used in real estate to make money without going the well-known routes of buying and flipping houses. When real estate LLC investors use an assignment of contract, they can make money off properties without ever actually buying them by instead opting to transfer real estate contracts .

This process is called real estate wholesaling.

Real Estate Wholesaling

Real estate wholesaling consists of locating deals on houses that you don’t plan to buy but instead plan to enter a contract to reassign the house to another buyer and pocket the profit.

The process is simple: real estate wholesalers negotiate purchase contracts with sellers. Then, they present these contracts to buyers who pay them an assignment fee for transferring the contract.

This process works because a real estate purchase agreement does not come with the obligation to buy a property. Instead, it sets forth certain purchasing parameters that must be fulfilled by the buyer of the property. In a nutshell, whoever signs the purchase contract has the right to buy the property, but those rights can usually be transferred by means of an assignment of contract.

This means that as long as the buyer who’s involved in the assignment of contract agrees with the purchasing terms, they can legally take over the contract.

But how do real estate wholesalers find these properties?

It is easier than you might think. Here are a few examples of ways that wholesalers find cheap houses to turn a profit on:

• Direct mailers
• Place newspaper ads
• Make posts in online forums
• Social media posts

The key to finding the perfect home for an assignment of contract is to locate sellers that are looking to get rid of their properties quickly. This might be a family who is looking to relocate for a job opportunity or someone who needs to make repairs on a home but can’t afford it. Either way, the quicker the wholesaler can close the deal, the better.

Once a property is located, wholesalers immediately go to work getting the details ironed out about how the sale will work. Transparency is key when it comes to wholesaling. This means that when a wholesaler intends to use an assignment of contract to transfer the rights to another person, they are always upfront about during the preliminary phases of the sale.

In addition to this practice just being good business, it makes sure the process goes as smoothly as possible later down the line. Wholesalers are clear in their intent and make sure buyers know that the contract could be transferred to another buyer before the closing date arrives.

After their offer is accepted and warranties are determined, wholesalers move to complete a title search . Title searches ensure that sellers have the right to enter into a purchase agreement on the property. They do this by searching for any outstanding tax payments, liens , or other roadblocks that could prevent the sale from going through.

Wholesalers also often work with experienced real estate lawyers who ensure that all of the legal paperwork is forthcoming and will stand up in court. Lawyers can also assist in the contract negotiation process if needed but often don’t come in until the final stages.

If the title search comes back clear and the real estate lawyer gives the green light, the wholesaler will immediately move to locate an entity to transfer the rights to buy.

One of the most attractive advantages of real estate wholesaling is that very little money is needed to get started. The process of finding a seller, negotiating a price, and performing a title search is an extremely cheap process that almost anyone can do.

On the other hand, it is not always a positive experience. It can be hard for wholesalers to find sellers who will agree to sell their homes for less than the market value. Even when they do, there is always a chance that the transferred buyer will back out of the sale, which leaves wholesalers obligated to either purchase the property themselves or scramble to find a new person to complete an assignment of contract with.

Learn more about assignment of contract in real estate by checking out this article .

Who Handles Assignment of Contract?

The best person to handle an assignment of contract is an attorney. Since these are detailed legal documents that deal with thousands of dollars, it is never a bad idea to have a professional on your side. If you need help with an assignment of contract or signing a business contract , post a project on ContractsCounsel. There, you can connect with attorneys who know everything there is to know about assignment of contract amendment and can walk you through the whole process.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

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Assignments of Buyer’s Rights Under Purchase Agreements

June 16, 2014, by michael t. denious.

Often in the course of a real estate transaction, the named buyer under the purchase agreement will seek to assign its rights as buyer to another party, referred to as the assignee. In connection with such assignment, the assignor/buyer transfers any and all rights as buyer under the subject purchase agreement to the assignee, usually in exchange for payment or other consideration given by the assignee to the assignor. As a result, the initial “buyer” is making its profit as of or prior to the closing of the sale, rather than having to take ownership and resell the property to a new buyer. This practice is often referred to as “wholesaling,” and is growing more and more prevalent, including in “short sale” transactions in which the existing mortgage holders agree to accept less than the full amount owed on the mortgage(s) and the seller does not receive any proceeds from the sale (other than those funds paid toward commissions, closing costs and the mortgage(s)).

The general rule under Arizona law is that a buyer’s interest in a real estate purchase agreement is freely assignable, absent restrictions or prohibitions in the underlying purchase agreement to the contrary. Many real estate purchase agreements, especially those drafted in a seller-oriented fashion, will contain such restrictions or prohibitions, such as restrictions against assignments to any other party except for affiliated or related entities, or a flat out prohibition against any assignments without seller’s prior written consent. Many other real estate purchase contract forms, however, including the standard form AAR purchase agreements (including the one used for residential real estate transactions with the “short sale” addendum) contain no such prohibition or restriction.

In the absence of restrictions or prohibitions against assignment in the underlying purchase agreement, and assuming there are no grounds for the seller to object or condition such an assignment, an assignment may be accomplished in as simple as one sentence. The buyer assigns any and all rights, title, and/or interest in the underlying purchase agreement, the escrow, and the underlying real property, to the named assignee. In many cases, however, there may be various reasons, both due to concerns of the buyer/assignor and the new assignee/buyer, that make various additional provisions in an assignment document advisable. What follows is a sample format that addresses various issues that would be of concern to the assignor (original buyer) when assigning the buyer’s rights over to an assignee buyer, including in the context of a “short sale” transaction in which the assignor (original buyer) is a “wholesaler” who seeks to make a profit from the assignment rather than closing on the purchase of the property.

THIS Assignment and Assumption of Buyer’s Rights Under Purchase Contract and Seller’s Consent (“Assignment”) is entered into between ________________, (“Assignor”); and _______________________ (“Assignee”), for Ten Dollars ($10.00) and other valuable consideration, with the consent of the undersigned Seller, and on the following terms and conditions:

1. This Assignment shall be effective as of _________, 2008 (“Assignment Effective Date”).

2. This Assignment pertains to that certain Residential Resale Real Estate Purchase Contract dated as of _____________, and any Addenda or Amendments thereto (hereinafter together the “Purchase Contract”), under which Assignor is Buyer and __________________ are Seller; and under which Buyer has the right to purchase that real property identified as the “Property” therein. The Purchase Contract is being administered pursuant to an escrow (the “Escrow”) established by Assignor and Seller _________________ (the “Escrow”).

3. Assignor hereby nominates Assignee as the substitute “Buyer” under the Purchase Contract. Assignor further assigns to Assignee Assignor’s entire right, title and interest in, to and under the Purchase Contract, the Property and the Escrow.

4. Assignor further assigns to Assignee any of its right, title and interest in or to any and all “Earnest Money” deposited in the Escrow pursuant to the Purchase Contract.

5. Seller acknowledges and agrees that Assignor is not in default under the Purchase Contract, and that the Purchase Contract remains enforceable in accordance with its terms.

6. Assignee hereby accepts the foregoing assignment and agrees to be bound by the terms and conditions of the Purchase Contract and assume the obligations of Buyer under the Purchase Contract.

7. This Assignment shall relieve Assignor of any and all duties, obligations or liabilities under the Purchase Contract.

8. Except as otherwise expressly modified herein, the terms and provisions of the Purchase Contract shall remain in full force and effect.

9. By its signature hereto, Seller consents to the terms of this Assignment, and represents and warrants that to the best of Seller’s knowledge there are no grounds to claim a default of Buyer under the Purchase Contract, and that the Purchase Contract remains enforceable in accordance with its terms as of the Assignment Effective Date.

10. Seller further expressly acknowledges that in connection with this Assignment, Assignor is acting on its own account and not on behalf of Seller, and is receiving separate consideration from Assignee, and therefore is receiving a profit from this transaction. Seller claims no interest in such consideration.

[Signatures of parties to follow]

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