Four Reasons To Use A Real Estate Contract Assignment

Savings – There are occasionally situations where buyers on a contract are a “front” for the real buyers. Perhaps the seller won’t sell it to one buyer for personal reasons. A second buyer can come in, get the home under contract, and then assign the contract to the initial buyer who had no ability to negotiate with the seller.

The savings come from avoiding a double-closing, where Buyer One completes a purchase (and pays all the closing costs and taxes required under the contract and the law) only to sell it to Buyer Two with a whole new set of taxes and closing costs.

A famous case where something similar to this occurred was when Walt Disney wanted to acquire many contiguous land parcels in Central Florida in order to build Walt Disney World. Disney knew if all the contracts were in one buyer’s name, then locals would see what was going on and prices would soar. Though I’m not sure if he used assignments or double sales, the assignment method would have saved additional money in the purchases.

Investment – This one takes point #2 to a whole new level, and specifically I’m referring to how real estate wholesalers can use real estate contract assignment as a full-time investment vehicle. Here’s what wholesalers do.

They grow a network of prospective real estate investors who are interested in opportunities to buy homes to lease to tenants. The wholesaler goes out and makes offers on many of the properties that hit the market, and when they obtain favorable terms through a contract to purchase a home, they market the contract to their investor pool to find a buyer that will pay them a “finders fee” through real estate contract assignment. For a well-funded investor, this can be a great way to earn a bunch of small profits.

Assignment Of Contracts – Use With Informed Discretion

Now that you understand some of the ways a real estate contract assignment can be used, you might be tempted to want to get involved. My advice is to use discretion.

Unless you are doing a simple assignment to simplify a purchase, you really need to ensure that you are prepared to handle the various situations that could potentially occur should matters not work out the way that you planned. You should consult an active real estate attorney to address your plans and to inquire about liabilities that might not be addressed in this article.

You should also tune in to the real estate market, making sure you understand supply and demand and the likely future movement of home prices. Investors who wholesale real estate are typically very bullish on the housing market, so an unexpected turn could cause great financial harm.

If you have any thoughts about real estate contract assignment that I failed to mention in this article, please let me know through the comments section below.