What Is An Assignment Fee — The Complete Investors Guide
- Justin Dossey
- July 20, 2022
Whether you’re new to wholesaling , a real estate investor or agent looking to learn more about the “assignment business”, or even a homeowner asking…
… We want to give you a complete guide to understanding the assignment contract and fee from all angles.
Here’s a list of all the questions we’ll be covering:
- What is an assignment fee?
- Reasons to use an assignment?
- How to assign a contract?
- Is it legal?
- Is it ethical?
- How much should a fee be?
- Who pays for it?
- Does the seller or buyer see the fee?
- Alternatives to an assignment?
- Assignment fees and agents?
- Where to get a contract?
- How to increase your assignment fees?
- How to find discounted properties to wholesale ?
1. What’s an assignment fee?
First and foremost we have to define the term.
An assignment fee is a payment from the “ assignor ” (wholesaler) to the “ assignee ” (cash buyer) when the assignee transfers their rights or interest of a property to the assignor during the close of a real estate transaction.
Most often, this term is used in the real estate investing strategy of “wholesaling”.
The business of a “wholesaler”, is grounded in the assignment fee: They negotiate to buy a property, then while in the close of escrow they find a cash buyer. They will then sell the rights to that contract to the cash buyer for a fee.
In practical terms, the “fee” is the difference between what you negotiated in price with the seller, and what you negotiated with the end buyer.
You find a seller who’s willing to sell her property for $250,000 dollars to you, cash. While in escrow you find a cash buyer who’ll be willing to buy that property for $260,000 cash. When it closes, you make $10,000.
The contracts Typically, most real estate contracts are “assignable”, meaning they can be transferred to another party; you mind find it expressed as an “assignment clause” or simply stated: “This contract is assignable”.
You’ll often hear this term amongst wholesalers, but there are other practicable uses for it as well…
2. Reasons to use an assignment
We covered why wholesalers do it: to make money.
But there are other reasons someone might need to use their assignment provision.
Changing ownership title If the contract is in your own name… but then, while in escrow, you want to change the “owner” to a trust rather than your personal name, you can then use the “assignment” clause.
Finding a partner While in the closing process of buying a property, you might come across a partner who’d like to have his equity/investment protected as well. So in that case you and your partner create a new entity and assign the rights of the contract to the new entity.
3. How to assign a contract?
Assigning a contract and taking a fee is as simple as giving instructions to your escrow or closing attorney, as long as the contract allows for that provision of assignment.
But the hard part is getting the price right…
It’s not as simple as finding a property on the MLS, saying you’re a cash buyer, then finding a real cash buyer to buy it from you at a mark-up.
There has to be “meat on the bone” for everyone AND a price that’s good enough for the seller to say, ”YES!”.
Most cash buyers will not buy a property at full retail value. There needs to be a way for them to make money either in a flip or having some equity in it if they decide to rent it.
That means, you as the wholesaler—who’s collecting assignment fees—need to find good deals for these cash buyers; that’s essentially what your job is: to find discounted properties.
What seller in their right mind will sell at a discount?
Many do, and for all sorts of reasons.
Here at Ballpoint Marketing, we specialize in creating marketing material for off-market investors looking for properties at a discount. Some of the marketing material that wholesalers might purchase from us to find these good deals is our real handwritten door hangers that you can pick up for .45¢ a piece.
4. Is it legal?
“Wholesaling” is a hot topic on the web and a source of a lot of controversies.
However, assigning a contract for an assignment is not technically illegal as long as the contract and both parties agree to it. If a State makes “assigning” illegal, then that hurts other people who are using assignments to change the name of the buying entity or assign to their family and/or partners.
However, there are many states that are against wholesalers and creating laws against them. That’s why you should meet with a real estate attorney to find out what you can do, and what you can say when you’re a wholesaler collecting assignment fees, however, at the time of this writing they have not exactly made wholesaling “illegal” but place restrictions like for example:
- Saying “ I have a property to sell ” when you actually don’t because it’s still in closing. Rather, You have a “contract” for sale.
- Representing the buyer when you’re not a licensed real estate agent under a broker.
There’s a very fine line between what a wholesaler does and what agents do. You have to make sure what you say and do doesn’t cross those lines.
Here’s a great video on why wholesalers have a bad rep and what you can do differently:
5. Is it ethical
Now that we got the “ legal ” question out of the way…
What about “How ethical is it to wholesale”.
Type that into the web and you’ll get thrown into a black hole of comments and forums chatter you won’t ever be able to get out of.
Here’s the bottom line of why it gets so much controversy and what it has to do with assignment fees…
Wholesalers are going around marketing “We buy houses CASH” when in reality, they aren’t buying it cash… they’re assigning the contract for a fee.
This is where everyone gets their tights all tied up in a bunch (did I just make up a word?! Yes! I did). Because if you say you’re going to close it with cash, but you have to walk away from the seller because you can’t find a buyer… how would you feel leaving a seller (who seriously needed to close yesterday), hanging)?
Some with a conscious would feel pretty bad… others don’t care.
So it’s up to you how you feel about the ethics side of things.
Can you close the deal yourself if you can’t find a cash buyer , via a hard money lender or partner? Or will you feel comfortable walking away from the deal? Or will you be confident enough to go up to the seller and tell her the truth, that you intended on selling the contract to a cash buyer but it seems that your priced it too high, can we renegotiate?
The underlying problem with “walking away” from a buyer is not pricing it right.
If you have a good deal, cash buyers will be all over it and be HAPPY to pay you an assignment fee.
Here’s a video on ethical wholesaling:
6. How much should a fee be?
New wholesalers typically aren’t sure what they should charge. But it’s going to vary from deal-to-deal, and market to market.
A decent wholesaling fee can range from $10,000 to $30,000.
There are occasions when you hear about $100,000 assignment fees. And they do happen. It’s just a matter of negotiating a good deal.
While there isn’t a “set fee” that wholesalers should charge, it all depends on how good of a deal you can negotiate, and how high you can mark up the contract for an end buyer.
So there are two components that determine how much you can get paid for an assignment fee:
- Seller’s price.
- End buyers price.
Later, in another section, I talk about how you can increase your assignment fee… for now, let’s just cover how much your can charge.
Earlier I mentioned that your market might have an influence on how much you can charge. And that has more to do with how low of a discount, sellers are willing to take AND how competitive it is in your market.
Here’s an example:
If a seller talks to three wholesalers, one offers $200,000 while the others offer $180,000, she most likely will go with the higher offer. Well, now those wholesalers might enter into bidding wars in the market, by creeping up their MAOP (Max allowable offer price).
When wholesalers start raising their Max offers (because the market is demanding it), AND if the end buying price (what cash buyers are willing to pay for that deal) does move up with it…
Then you start seeing wholesalers’ assignment fees start shrinking down. We’ll go over later some techniques for helping with this natural occurrence in the market.
Here’s an example of a real wholesaler using our handwritten mailers, in a case study where he made anywhere from $4k fees to $22,500
7. Who pays for it?
Typically, in a traditional real estate wholesaling model, the end buyer (the cash buyer) is paying for your assignment fee.
For example: You negotiate with the seller to buy the property for $100,000. And the end buyer agrees to buy this deal for $120,000. He enters into escrow and pays the $120,000. You get the difference between the seller price and the end buyer price.
8. Does the seller or buyer see the fee?
In a typical assignment transfer, yes your assignment fee will be inside the closing statements.
After a property closes escrow, every party involved will get “closing statements” that look might look like this (depending on your state and the companies you use):
One of the line items may show up as “Assignment Fee” (or something similar), and show the amount.
Buyers will see these, as well as sellers.
However, a cash buyer (usually) understands that wholesaling is A LOT of work and that you should get paid for it. A good cash buyer understands that.
Sellers, most likely, won’t understand what an “assignment fee” is when they see this doc (they most likely won’t even read it).
On the rare occasion that they actually do ask what that line item is, you can tell the truth like this: “We work with partners and lenders all the time, and sometimes we end up selling the property during escrow to these partners, instead of keeping it ourselves. In this case we ended up selling to them”.
There’s a way to circumvent this potential problem of an assignment fee showing up on the closing documents…
And that’s by doing a double close instead of an assignment.
Let me explain in the next section…
9. Alternatives to an assignment?
As mentioned in the previous section, an assignment fee can have some cons to it. The primary being that sellers AND buyers can see how much you’re getting paid.
However, there is another “tool” you can use that hides this from both parties, and that’s called the “double close” (sometimes referred to as a “simultaneous closing” or “back to back” closing. As the name implies, there are 2 separate closings, not 1 (like our assignment fee transaction).
Here’s an explanation:
- The homeowner (party A) agrees to sell to a wholesaler (Party B) for $100,000
- They enter escrow
- While in escrow, Party B finds a cash buyer (Party C)
- Party C agrees to buy that property for $150,000
- They enter a second escrow agreement (different from the first)
- Party C funds the escrow account to buy the property at $150,000
- Party B uses those funds (minus his “assignment fee”) to pay the purchase from Party A
A little confusing?
Maybe this infographic helps:
We won’t go into too much detail about this as this is an article on the assignment fee… But just know that there is an alternative to hiding your fee but using a double close.
The con to this is that you pay a little more because you’re in fact doing 2 closes, not 1. So the times you might want to a double close vs an assignment fee is when you negotiated a very good deal and want to conceal the big check you’ll be getting.
10. Assignment fees and agents?
Anyone can get paid an assignment fee for this kind of “wholesaling” transaction. There’s no law that says agents can’t. However, that agent/broker needs to pay careful attention to their State RE commission laws as they’re put under serious scrutiny if they walk any fine lines.
For instance, if you’re buying the property and wholesaling it AND you’re licensed… in most states, you have to express to the seller that you are a licensed real estate agent but you are NOT representing them, and instead the principle of the transaction.
If you’re an agent wondering if you can (or should) do this, first contact your broker or RE Commission office to find out more.
Secondly, you might want to reconsider doing this as in some markets agent commission fees are higher than typical wholesaling fees. This is rare, but there are some hot markets where wholesalers have to keep raising their prices to win the deal, and therefore lower their assignment fee.
11. How to increase your assignment fees?
As mentioned in a previous section, your fee is greatly dependent on the kind of deal you negotiate.
So if you get a deal at $100,000 and another investor (cash buyer) is willing to pay $150,000 for it, you walk with a $50,000 assignment fee (assuming no closing costs are removed from this).
There are 4 factors to increasing your assignment fees…
- Become a better marketer If you improve your knowledge and skill set in marketing, you can essentially get to motivated sellers before anyone else.In the next section, we cover how to find these properties, which has everything to do with marketing, but one way (that we specialize in) is using handwritten mail to gain the best response rates from sellers.
- Become a better negotiator If you study and practice good salesmanship you can effectively win deals even if you’re offer is “low” . If you have no experience in sales, this will take time, but there are loads of resources available online (free and paid) that you can take advantage of. But, if you’re planning to stay in this entrepreneurship game for the long haul I HIGHLY suggest you study sales on a regular basis.
- Know you numbers Getting better and better at knowing what your market demands in terms of prices, rehab costs , etc… will help determine a more accurate price at a faster rate. Why does this matter to getting paid a higher assignment fee? It’s 2 reasons: First, if you know that cash buyers are willing to pay X, you can raise your asking price from end buyers, or on the flip side of that if, you know that a house needs some major repairs you can use that negotiated a lower price with the seller…Secondly, if you are really good with numbers, you can give an offer faster than your competition who has to take 1-2 days to send an offer in. In competitive markets “ Speed to lead ” wins and the person who can act fastest is usually the one who takes the trophy.
- Build a thriving buyers list The second component of the assignment fee and wholesaling business is selling the contract to a cash buyer.And, if you can build a list of buyers who will pay more for a good deal than most of the other “bottom of the barrel” buyers who demand very steep prices.Where do find buyers willing to pay more? It’s usually among high w-2 earners (doctors, lawyers, etc) who like to flip houses on the side. Or high-income business owners looking to park their cash somewhere to earn 15%+ annual ROI by doing so occasional flips.If you can find them, network with them, and add them to your list you can essentially raise your property raise to increase your assignment fee
12. How to find discounted properties to wholesale?
Finally our last section in this article which is probably at the top of some people’s minds:
“ Assignments sound great, but how do you FIND discounted properties!?!?”
Wholesaling is probably one of the toughest occupations in real estate.
You have to be well-rounded in almost every aspect of the industry. And you have to be top-notch in your selling and marketing capabilities.
But with that, there are foundational techniques to help you find these properties on your own. I’m going to give you 2 resources to start below.
First, is our article “ 8 ways to find 100 sellers for under $500”
Second is our eBook on Direct mail
You can get the Ebook for free by subscribing below to our newsletter, where we give lessons, stories, and value every week to real estate investors like you…
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What Is an Assignment Fee?
by Denise Sullivan
Published on 26 Sep 2017
If you assign cash, property or other assets to another party, an assignment fee may be required to complete the transaction. The assignment fee compensates the assignor for the rights he is giving up in the agreement. The amount of the fee will vary based on the type and value of the property involved in the agreement. Before executing an assignment agreement, check any previous contracts related to the assigned property. Some contracts include a nonassignment clause that automatically invalidates the entire contract if violated.
Requirements for a Legally Binding Assignment
Assignments do not have to be in writing to be legally binding. Verbal assignment agreements also are valid, but can be more difficult to prove if there is a dispute. In the absence of a written agreement, the assignor will be held liable for any damages resulting from the assignment. Assignment agreements that are set to take place in the future are not legally binding.
Negotiating the Assignment Fee
Some states have laws limiting the amount of the assignment fee that may be charged per transaction. As long as the legal requirements are met, the parties to the assignment are free to negotiate the fee amongst themselves. Once the fee has been set, include the amount and terms of payment in the assignment agreement to prevent future disputes.
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What is an Assignment Fee? The Ultimate Wholesaler’s Guide
In real estate investing, an assignment fee is the fee paid by the end buyer to the real estate wholesaler at the time of closing.
What is an assignment fee?
How do you assign a real estate contract?
How can you increase your assignment fee as a real estate wholesaler?
Those are just some of the questions we're going to answer in this ultimate assignment fee guide.
Let's dive in!
Part 1. Answering Common Questions About Assignment Fees
To start, we're going to answer some of the most commonly asked questions about assignment fees.
In real estate investing, an assignment fee is the fee paid by the end buyer to the real estate wholesaler at the time of closing.
This is the part of the process where the real estate wholesaler makes their money -- after finding a great deal and getting the property under contract, they then flip (i.e. assign) that contract to a cash buyer for a profit.
How are assignment fees calculated?
Assignment fees are calculated by taking the difference between what the seller was promised and what the buyer is paying.
For example, if a wholesaler has a contract to purchase a property for $100,000 and they assign that contract to a cash buyer for $120,000, then their assignment fee would be $20,000.
Who pays the assignment fee?
The assignment fee is paid by the cash buyer at closing.
And, critically, you -- the wholesaler -- are the person who gets to decide what that assignment fee is... it's only a matter of getting the cash buyer to agree (assuming you're not doing a double closing; more on that later).
What is the average wholesaler’s assignment fee?
The average assignment fee for a real estate wholesaler is between $2000 and $7000.
Of course, this number will depend on the market you're in as well as the level of experience that you have.
Many wholesalers charge upwards of $10,000 or even $20,000 for their assignment fee. Later in this guide, we'll show you how to systematically increase your assignment fee.
REISift users, on average, pull more money per deal than non-members. Here are some testimonials from our members and Sift Dojo attendees.
Are assignment fees taxable?
Yes, assignment fees are considered taxable income.
Be sure to speak with your accountant or tax advisor about the specific rules in your state.
What is a real estate assignment contract?
A real estate assignment contract is the contract between the wholesaler and the cash buyer that assigns (or transfers) the rights of the original purchase agreement to the cash buyer.
This contract will include all of the terms of the original purchase agreement, including:
- The price that was agreed to between the wholesaler and seller
- The property address
- The closing date
- Any contingencies that were in the original contract (i.e. financing, inspections, etc.)
Once the assignment contract is signed by both parties, the cash buyer will take over all responsibilities under the original purchase agreement and will be responsible for closing on the property.
What is a double close?
A double close is a type of real estate transaction where the wholesaler sells the property to the cash buyer and then immediately purchases the property from the seller.
In other words, there are two closings -- one for the sale of the property from wholesaler to cash buyer and another for the purchase of the property from seller to wholesaler.
In terms of assignment fees, double closings are often used when the wholesaler wants to keep their assignment fee confidential.
Download Assignment Fee Template
Part 2. how to assign a real estate contract .
Next, we're going to discuss the process for assigning a real estate contract -- from finding a great deal and building your buyers list to acquiring an assignment contract and collecting your assignment fee.
Step 1. Find a Great Deal
The first step in wholesaling real estate -- and thus assigning property contracts -- is finding a great real estate deal.
This is where your marketing efforts will come into play. You'll need to generate a steady stream of leads in order to find the best possible deals on properties that fit your criteria.
There are a number of ways to generate leads, but the most effective method is to use a combination of online and offline marketing.
This could include everything from direct mail campaigns and cold calling to driving for dollars and door knocking.
Check out our complete real estate investor marketing plan to learn more about this part of the process.
Step 2. Build Your Buyers List
A fundamental part of wholesaling real estate is flipping property contracts to cash buyers who have the funds to purchase your deals within just a couple of weeks.
A buyers list is a database of cash buyers (other real estate investors) who are interested in buying your deals.
You can find cash buyers by networking with other investors, attending real estate meetups and seminars, or searching online.
Here are 10 more ways to find cash buyers .
Step 3. Acquire an Assignment Contract
Once you've found a great real estate deal and got under contract with the seller, it's time to acquire an assignment contract.
You can do this by searching online for assignment contract templates or hiring a local lawyer to put the contract together for you. The assignment contract will pass the purchasing power and obligations from you to the new buyer.
Step 4. Collect Your Assignment Fee
After the new buyer has closed on the property, it's time for you to collect your assignment fee. This is typically done by wire transfer or check at the closing table via a title company.
And that's it! You've now successfully assigned a real estate contract and collected your assignment fee.
Part 3. The Pros & Cons of Assignment Contracts
Now let's take a moment to look at the pros and cons of assignment contracts.
- It's Cheaper Than Double Closing: Double closings can be more expensive (in terms of both time and money) than assignment contracts.
- It's Simple: Assignment contracts are relatively simple compared to other types of real estate transactions.
- It's Fast: Assignment contracts can be completed in as little as a week or two.
- It's Transparent: Unlike double closings, there is no need for two sets of escrow accounts, two sets of title insurance policies, or two sets of closing costs.
- Your Assignment Fee is Visible: Because your assignment fee is paid at closing, it will be visible to everyone involved in the transaction.
- It's Not Always Allowed: Some states have laws that prohibit or restrict the use of assignment contracts.
Part 4. 10 Ideas For Increasing Your Assignment Fee as a Wholesaler
To close out this guide, we're going to share 10 different ways that you -- the real estate wholesaler -- can increase your assignment fee.
1. Start With Great Deals
The better the deal, the higher your assignment fee will be.
This is why finding great deals -- and double-checking your math as well as your due diligence -- is absolutely critical to increasing your assignment fee.
So how do you find great real estate deals?
We have a detailed guide on finding great real estate deals over here .
2. Learn to Negotiate (With Sellers)
If you want to increase your assignment fee, you need to be able to negotiate with sellers.
The better you are at negotiating and sales — which in large part, just depends upon being an empathetic and helpful person — the better deals you’ll be able to get and the higher your assignment fee will be.
After all, if the seller agrees to a lower price, then that means you make a bigger profit.
The caveat here would be that you should always do right by your sellers. Don’t be afraid to negotiate (start lower than your max offer)... but also don’t try to screw anyone over.
3. Follow Up
It’s very rare that you’re going to turn someone from a lead into a deal with just a single phone call.
The nature of wholesaling real estate is that it requires a consistent and systematic follow-up process with seller leads to be successful.
Following up will help you close more deals… and closing more deals will give you the confidence, experience, and volume you need to increase your assignment fee.
4. Find Your Offer Min & Max
Good real estate deals are just a result of good due diligence and good math.
Determine how much money your cash buyer is going to want to pull, factor in your assignment fee, consider repair costs and holding costs… and calculate your max offer on the property.
Do this before you negotiate with the seller.
And make sure that when negotiations begin, you start well below your max offer so that you have room to adjust based on their response to your initial offer — this is your minimum offer.
You might find your max offer by using the popular 70% rule — which states that a real estate investor should pay no more than 70% of a property’s ARV (After Repair Value) — but you can find your starting offer by decreasing that to 50% or lower.
5. Qualify Your Cash Buyers
The amount of your assignment fee — as well as the efficiency with which your business operates — depends upon high-quality cash buyers.
Most wholesalers are a little over-eager to add email addresses to their cash buyer list.
But remember: quality over quantity.
You might have 500 cash buyers on your list… but only 20 or 30 of those are actually high-quality buyers.
Before adding buyers to your list, get proof of funds and make sure they’ve bought properties via assignment before.
Those buyers are going to move faster, pay the asking price for your properties, and return for more properties to buy.
6. Identify Cohorts of Cash Buyers
The instinct for most wholesalers is to send every deal to every cash buyer… but that actually wastes a lot of time.
It’s not in your interest to have to help every potential buyer determine whether or not they’re the right buyer for this deal.
It’s far more efficient to learn about your buyers upfront and determine what type of cash buyers they are — rehabbers, landlords, etc.
Using simple software, you can then create cohorts of cash buyers and send the right deal to the right people to get faster turn-around-times, less questions, and bigger assignment fees.
7. Text Your Buyers
Email is easy and popular… but it’s not necessarily the best channel when promoting deals to your list of cash buyers.
In fact, SMS or text messaging has some clear advantages.
Just consider these stats from ManyChat …
- 269 billion emails are sent every day with roughly 50% of them ending up in spam folders.
- SMS has a click-through rate of 19% and email has a click-through rate of 3.2%
The point is, if you want to get the attention of your high-quality buyers, then it’s probably worth sending both emails and text messages.
The faster you reach the right buyer, the easier it’ll be to get the assignment fee you want.
8. Don’t Negotiate (With Buyers)
As the wholesaler, realize that you determine your assignment fee.
No one else gets to decide what your assignment fee is going to be — now if you can’t get the buyer to agree to pay it, then that’s another problem… but you can always walk away and find another buyer.
If you’re going to raise your assignment fee, then it’s important to understand that all you have to do is… well, raise it. And see what happens.
High-quality buyers aren’t going to care about how much you’re making so long as they’re also making a good chunk of money.
9. Work With Real Estate Agents
Real estate agents control a huge part of every real estate market.
So if you exclude working with real estate agents to find cash buyers, then you’re ignoring a huge portion of the market’s revenue and potential.
Plain and simple.
Good real estate agents who work with cash buyers will understand your business model and be more than willing to coordinate the deal for you.
You will have to pay a bit of commission — or at least, the buyer will — but you’ll get to remove all the drama from the equation by working with agents. They understand how assignments work, and they negotiate on the behalf of the cash buyer.
It might not drastically increase your assignment fee, but it will help you dispose of deals far more efficiently.
10. Require a Nonrefundable Fee
When it comes to wholesaling, time really is money — the faster you can find a high-quality cash buyer, the more likely you are to get the assignment fee you want.
And one of the worst things that can happen is that your buyer will back out of the deal and you’ll have to restart the entire process.
That’s why you should make the buyer have skin in the game.
Require a nonrefundable fee from cash buyers who are ready to take action — this fee should be upwards of $3,000 and it can contribute to your total assignment fee.
If a buyer refuses to pay this to secure the deal as they’re own, then you probably want to find a different buyer anyway.
Final Thoughts on Real Estate Assignment Fees
We hope this guide has helped clear up any confusion you had about assignment fees and how they work in wholesaling real estate.
Remember: if you want to increase your assignment fee, focus on finding (and negotiating) great deals, following up with leads, qualifying cash buyers, and being systematic in your business.
Do those things, and you’ll be well on your way to making more money per deal.
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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.
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What Is an Assignment?
Assignment most often refers to one of two definitions in the financial world:
- The transfer of an individual's rights or property to another person or business. This concept exists in a variety of business transactions and is often spelled out contractually.
- In trading, assignment occurs when an option contract is exercised. The owner of the contract exercises the contract and assigns the option writer to an obligation to complete the requirements of the contract.
- Assignment is a transfer of rights or property from one party to another.
- Options assignments occur when option buyers exercise their rights to a position in a security.
- Other examples of assignments can be found in wages, mortgages, and leases.
Property Rights Assignment
Assignment refers to the transfer of some or all property rights and obligations associated with an asset, property, contract, etc. to another entity through a written agreement. For example, a payee assigns rights for collecting note payments to a bank. A trademark owner transfers, sells, or gives another person interest in the trademark. A homeowner who sells their house assigns the deed to the new buyer.
To be effective, an assignment must involve parties with legal capacity, consideration, consent, and legality of object.
A wage assignment is a forced payment of an obligation by automatic withholding from an employee’s pay. Courts issue wage assignments for people late with child or spousal support, taxes, loans, or other obligations. Money is automatically subtracted from a worker's paycheck without consent if they have a history of nonpayment. For example, a person delinquent on $100 monthly loan payments has a wage assignment deducting the money from their paycheck and sent to the lender. Wage assignments are helpful in paying back long-term debts.
Another instance can be found in a mortgage assignment. This is where a mortgage deed gives a lender interest in a mortgaged property in return for payments received. Lenders often sell mortgages to third parties, such as other lenders. A mortgage assignment document clarifies the assignment of contract and instructs the borrower in making future mortgage payments, and potentially modifies the mortgage terms.
A final example involves a lease assignment. This benefits a relocating tenant wanting to end a lease early or a landlord looking for rent payments to pay creditors. Once the new tenant signs the lease, taking over responsibility for rent payments and other obligations, the previous tenant is released from those responsibilities. In a separate lease assignment, a landlord agrees to pay a creditor through an assignment of rent due under rental property leases. The agreement is used to pay a mortgage lender if the landlord defaults on the loan or files for bankruptcy . Any rental income would then be paid directly to the lender.
Options can be assigned when a buyer decides to exercise their right to buy (or sell) stock at a particular strike price . The corresponding seller of the option is not determined when a buyer opens an option trade, but only at the time that an option holder decides to exercise their right to buy stock. So an option seller with open positions is matched with the exercising buyer via automated lottery. The randomly selected seller is then assigned to fulfill the buyer's rights. This is known as an option assignment.
Once assigned, the writer (seller) of the option will have the obligation to sell (if a call option ) or buy (if a put option ) the designated number of shares of stock at the agreed-upon price (the strike price). For instance, if the writer sold calls they would be obligated to sell the stock, and the process is often referred to as having the stock called away . For puts, the buyer of the option sells stock (puts stock shares) to the writer in the form of a short-sold position.
Suppose a trader owns 100 call options on company ABC's stock with a strike price of $10 per share. The stock is now trading at $30 and ABC is due to pay a dividend shortly. As a result, the trader exercises the options early and receives 10,000 shares of ABC paid at $10. At the same time, the other side of the long call (the short call) is assigned the contract and must deliver the shares to the long.
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Assignment (Real Estate) Definition
Investing Strategy , Jargon, Legal, Terminology, Title
Table of Contents
- What Is an Assignment?
- What is an Assignment in Real Estate?
- What Does it Mean to Assign a Contract in Real Estate?
- How Does a Contract Assignment Work?
- Pros and Cons of Assigning Contracts
REtipster does not provide legal advice. The information in this article can be impacted by many unique variables. Always consult with a qualified legal professional before taking action.
In real estate terms, an assignment of contract is a way to profit from a real estate transaction without ever becoming the owner of the property.
The assignment method is a standard tool in a real estate wholesaler’s kit and lowers the barrier to entry for a real estate investor because it does not require the wholesaler to use much (or any) of their own money to profit from a deal.
Contract assignment is a common wholesaling strategy where the seller and the wholesaler (i.e. – middleman) sign an agreement giving the wholesaler the sole right to buy a property at a specified price, within a certain period of time.
The wholesaler then finds another buyer and assigns the contract to him or her. The wholesaler isn’t selling the property to the end buyer because the wholesaler never takes title to the property during the process. The wholesaler is simply selling the contract , which gives the end buyer the right to buy the property in accordance with the original purchase agreement.
In doing this, the wholesaler can earn an assignment fee for putting the deal together.
Some states require a real estate wholesaler to be a licensed real estate agent, and the assignment strategy can’t be used for HUD homes and REOs.
The process for assigning a contract follows some common steps.
Find the Right Property
This is where the heavy lifting happens—investors use many different marketing tactics to find leads and identify properties that work with their investing strategy. Typically, for wholesaling to work, a wholesaler needs a motivated seller who wants to unload the property as soon as possible. That sense of urgency works to the wholesaler’s advantage in negotiating a price that will be attractive to buyers and cover their assignment fee.
RELATED: What is “Driving for Dollars” and How Does It Work?
Get a Purchase Agreement Signed
Once a motivated seller has agreed to sell their property at a discounted price, they will sign a purchase agreement with the wholesaler. The purchase agreement needs to contain language that clearly allows the buyer to assign their rights in the agreement to a third party . Most standard purchase agreements do not include this language by default, so if the buyer plans to sell/assign the contract, they need to make sure this language is included (note: talk with an attorney to make sure the language included and explained correctly).
RELATED: Wholesaling Made Simple! A Comprehensive Guide to Assigning Contracts
Communicate, Communicate, Communicate
From the very beginning, it’s important for a wholesaler to communicate with their seller about their intent to assign the contract. Many sellers are not familiar with the assignment process, so if the role of the buyer is going to change along the way, the seller needs to be aware of this at or before the time they sign the original purchase agreement .
Find an End Buyer
This is the other half of a wholesaler’s job – marketing to find buyers. Once a buyer has been found, the wholesaler can assign the contract to the new party and work with both the original seller and the end buyer to schedule a closing date.
The assignment is done through a simple “Assignment Agreement” and it allows the new buyer to step into the wholesaler’s shoes as the buyer in the original contract.
While this document technically replaces the wholesaler with the new end buyer, the wholesaler doesn’t get paid until the deal is closed.
Most assignment contracts include language for a nonrefundable deposit from the end buyer, which protects the wholesaler in case the buyer backs out. Although it’s possible to download assignment contract templates online, this is one situation where most experts recommend having your contracts reviewed by an attorney. The assignment wording has to be precise and in accordance with your state laws; having an attorney review your contract protects you against any issues down the road.
Close the Transaction, Assign the Contract & Collect the Assignment Fee
Wholesalers get paid once the end buyer closes the deal. The assignment fee can be a flat amount, a percentage of the purchase price or the difference between the original purchase price and the end buyer’s purchase price.
With an assignment transaction, the end buyer will see precisely how much the wholesaler is getting paid because the end buyer has to sign the closing statement (which states the purchase price from the seller) and the Assignment Agreement (which clearly states the assignment fee being paid to the wholesaler).
If the assignment fee is a reasonable amount relative to the purchase price, most serious investors won’t have any qualms about paying this. If, however, the assignment fee is very large relative to the original purchase price (e.g. – if the original seller agreed to sell their property for $10,000, the wholesaler is collecting an assignment fee of $20,000, and the property is worth $50,000), some end buyers may take issue with this.
In cases where the wholesaler has a substantially higher profit margin, a double closing or a traditional closing is a safer way to close a wholesale transaction. When there are two separate closings taking place, the seller and buyer are not able to see the numbers and overall profit margin being made by the wholesaler between the two transactions.
According to UpCounsel, most contract assignments are done for about $5,000, although depending on the property and the market, it could be higher or lower.
Assigning contracts is a way to lower the barrier to entry for many new real estate investors; because they don’t need to put up their own money to buy a property or assume any risk in financing a deal.
The wholesaler isn’t part of the title chain, which streamlines the process and avoids the hassle of closing two times. Compared to the double-close strategy, assignment contracts require less paperwork and are usually less costly (because there is only one closing occurring, rather than two separate transactions).
On the downside, the wholesaler has to sell the property as-is, because they don’t own it at any point and they cannot make repairs or renovations to make the property look more attractive to a potential buyer. Financing may be much more difficult for the end buyer because many mortgage lenders won’t work with assigned contracts. Purchase Agreements also have expiration dates, which means the wholesaler has a limited window of time to find an end buyer and get the deal done.
Being successful with assignment contracts usually comes down to excellent marketing, networking, and communication between all parties involved. It’s all about developing strategies to find the right properties and having a solid network of investors you can assign them to quickly.
It’s also critical to be aware of any applicable laws in the jurisdiction where the wholesaler is working and holding any licenses required for these kinds of real estate transactions.
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An assignment clause (AC) is an important part of many contracts, especially for real estate. In this article we discuss:
- What is an Assignment Clause? (with Example)
- Anti-Assignment Clauses (with Example)
- Non-Assignment Clauses
- Important Considerations
- How Assets America ® Can Help
Frequently Asked Questions
What is an assignment clause.
An AC is part of a contract governing the sale of a property and other transactions. It deals with questions regarding the assignment of the property in the purchase agreement. The thrust of the assignment clause is that the buyer can rent, lease, repair, sell, or assign the property.
To “assign” simply means to hand off the benefits and obligations of a contract from one party to another. In short, it’s the transfer of contractual rights.
Explicitly, an AC expresses the liabilities surrounding the assignment from the assignor to the assignee. The real estate contract assignment clause can take on two different forms, depending on the contract author:
- The AC states that the assignor makes no representations or warranties about the property or the agreement. This makes the assignment “AS IS.”
- The assignee won’t hold the assignor at fault. It protects the assignor from damages, liabilities, costs, claims, or other expenses stemming from the agreement.
The contract’s assignment clause states the “buyer and/or assigns.” In this clause, “assigns” is a noun that means assignees. It refers to anyone you choose to receive your property rights.
The assignment provision establishes the fact that the buyer (who is the assignor) can assign the property to an assignee. Upon assignment, the assignee becomes the new buyer.
The AC conveys to the assignee both the AC’s property rights and the AC’s contract obligations. After an assignment, the assignor is out of the picture.
What is a Lease Assignment?
Assignment Clause Example
This is an example of a real estate contract assignment clause :
“The Buyer reserves the right to assign this contract in whole or in part to any third party without further notice to the Seller; said assignment not to relieve the Buyer from his or her obligation to complete the terms and conditions of this contract should be assigning default.”
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An assignment provision is a separate clause that states the assignee’s acceptance of the contract assignment.
Assignment Provision Example
Here is an example of an assignment provision :
“Investor, as Assignee, hereby accepts the above and foregoing Assignment of Contract dated XXXX, XX, 20XX by and between Assignor and ____________________ (seller) and agrees to assume all of the obligations and perform all of the duties of Assignor under the Contract.”
Anti-Assignment Clauses & Non-Assignment Clauses
An anti-assignment clause prevents either party from assigning a contract without the permission of the other party. It typically does so by prohibiting payment for the assignment. A non-assignment clause is another name for an anti-assignment clause.
Anti-Assignment Clause Example
This is an anti-assignment clause example from the AIA Standard Form of Agreement:
” The Party 1 and Party 2, respectively, bind themselves, their partners, successors, assigns, and legal representatives to the other party to this Agreement and to the partners, successors, assigns, and legal representatives of such other party with respect to all covenants of this Agreement. Neither Party 1 nor Party 2 shall assign this Agreement without the written consent of the other.”
Important Considerations for Assignment Contracts
The presence of an AC triggers several important considerations.
In essence, the assignor is a broker that brings together a buyer and seller. As such, the assignor collects a fee for this service. Naturally, the assignor doesn’t incur the normal expenses of a buyer.
Rather, the new buyer assumes those expenses. In reality, the assignment fee replaces the fee the realtor or broker would charge in a normal transaction. Frequently, the assignment fee is less than a regular brokerage fee.
For example, compare a 2% assignment fee compared to a 6% brokerage fee. That’s a savings of $200,000 on a $5 million purchase price. Wholesalers are professionals who earn a living through assignments.
Frequently, the assignor will require that the assignee deposit the fee into escrow. Typically, the fee is not refundable, even if the assignee backs out of the deal after signing the assignment provision. In some cases, the assignee will fork over the fee directly to the assignor.
Just because the contract contains an AC does not obligate the buyer to assign the contract. The buyer remains the buyer unless it chooses to exercise the AC, at which point it becomes the assignor. It is up to the buyer to decide whether to go through with the purchase or assign the contract.
Nonetheless, the AC signals the seller of your possible intent to assign the purchase contract to someone else. For one thing, the seller might object if you try to assign the property without an AC.
You can have serious problems at closing if you show up with a surprise assignee. In fact, you could jeopardize the entire deal.
Another thing to consider is whether the buyer’s desire for an AC in the contract will frighten the seller. Perhaps the seller is very picky about the type of buyer to whom it will sell.
Or perhaps the seller has heard horror stories, real or fake, about assignments. Whatever the reason, the real estate contract assignment clause might put a possible deal in jeopardy.
Chain of Title
If you assign a property before the closing, you will not be in the chain of title. Obviously, this differs from the case in which you sell the property five minutes after buying it.
In the latter case, your name will appear in the chain of title twice, once as the buyer and again as the seller. In addition, the latter case would involve two sets of closing costs, whereas there would only one be for the assignment case. This includes back-to-back (or double) closings.
Assignment might not be enforceable in all situations, such as when:
- State law or public policy prohibits it.
- The contract prohibits it.
- The assignment significantly changes the expectations of the seller. Those expectations can include decreasing the value of the property or increasing the risk of default.
Also note that REO (real estate owned) properties, HUD properties, and listed properties usually don’t permit assignment contracts. An REO property is real estate owned by a bank after foreclosure. Typically, these require a 90-day period before a property can be resold.
How Assets America Can Help
The AC is a portion of a purchase agreement. When a purchase involves a commercial property requiring a loan of $10 million or greater, Assets America ® can arrange your financing.
We can finance wholesalers who decide to go through with a purchase. Alternatively, we can finance assignees as well. In either case, we offer expedient, professional financing and many supporting services. Contact us today for a confidential consultation.
What rights can you assign despite a contract clause expressly prohibiting assignment?
Normally, a prohibition against assignment does not curb the right to receive payments due. However, circumstances may cause the opposite outcome. Additionally, prohibition doesn’t prevent the right to money that the contract specifies is due.
What is the purpose of an assignment of rents clause in a deed of trust and who benefits?
The assignment of rents clause is a provision in a mortgage or deed of trust. It gives the lender the right to collect rents from mortgaged properties if the borrower defaults. All incomes and rents from a secured property flow to the lender and offset the outstanding debt. Clearly, this benefits the lender.
What is in assignment clause in a health insurance contract?
Commonly, health insurance policies contain assignment of benefits (AOB) clauses. These clauses allow the insurer to pay benefits directly to health care providers instead of the patient. In some cases, the provider has the patient sign an assignment agreement that accomplishes the same outcome. The provider submits the AOB agreement along with the insurance claim.
What does “assignment clause” mean for liability insurance?
The clause would allow the assignment of proceeds from a liability award payable to a third party. However, the insured must consent to the clause or else it isn’t binding. This restriction applies only before a loss. After a first party loss, the insurer’s consent no longer matters.
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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:
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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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What is Reverse Wholesaling: A Comprehensive Guide For Real Estate Investors
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- Legal Dictionary
Assignment is a legal definition that refers to the transfer of rights, property, or other benefits between two parties. The party allocating the rights is known as the “assignor”, while the one receiving them is called the “assignee”. The other original party to the contract is known as the “ obligor ”.
A burden, duty, or detriment cannot be transferred as an assignment without the agreement of the assignee . Furthermore, the assignment can be carried out as a gift, or it may be paid for with a contractual consideration .
Keep reading to learn how this important legal term is used both in contract and property law and to see relevant examples.
- Assignment Examples
A common example of assignment within property law can be seen in rental agreements between landlords and tenants. For example, a tenant may be renting from a landlord but wants another party to take over the property . In this scenario, the tenant may be able to choose between assigning the lease to a new tenant or subleasing it.
If assigning it, the new tenant will be given the entire balance of the term, with no reversion to anyone else being possible. In other words, the new tenant would have a legal relationship with the landlord. On the other hand, if subleasing the property, the new tenant would be given a limited term and no legal responsibility towards the property owner, only towards the original tenant.
Another example of assignment can be seen within contract law . Let’s say that a school hires a piano teacher for a monthly employment contract with a salary of $2000 per month. As long as there is consent from all parties, the teacher could assign their contract to another qualified piano instructor.
This would be an assignment both of the piano teacher’s rights to receive $2000 per month, and a delegation of their duty to teach piano lessons. This illustrates the fact that under contract law, assignment always includes a transfer of both rights and duties between the parties. If a breach of contract is made by either party, for example for defective performance, then the new teacher or the school can sue each other accordingly.
- Legal Requirements for Assignment
For an assignment to be legally valid, it must meet certain requirements . If these are not met, a trial court can determine that the transfer of rights did not occur. The legal requirements for assignment are as follows:
- All parties must consent and be legally capable to carry out the assignment.
- The objects, rights, or benefits being transferred must be legal.
- The assignment is not against public policy or illegal.
- Some type of consideration is included if necessary.
- The contract in question must already be in place and doesn’t prohibit assignment.
- If a duty is being transferred, and it requires a rare genius or skill, then it cannot be delegated.
- The assignment doesn’t significantly change the expected outcome of a contract.
- Assignment Steps
To successfully assign a contract, certain steps must be followed to ensure the process is legally valid. The necessary assignment steps are listed below:
- Ensuring there is no anti-assignment clause in the contract.
- Executing the assignment by transferring the obligations and rights to a third party.
- Notifying the obligor of the transfer, which in turn relieves the assignor of any liability.
- Avoiding Assignment
In certain situations, one of the two parties may not want to allow their counterpart to assign the contract. This can be prevented by setting anti-assignment clauses in the original contract. An example of this is making it necessary for prior written consent to be attained from the other parties before the assignment is approved. Nevertheless, an anti-assignment clause cannot be included in an assignment that was issued or ordered by a court.
- Assignment vs. Novation
Novation occurs when a party would like to transfer both the benefits and burden of a contract to another party. This is similar to assignment in the sense that the benefits are transferred, but in this case, the burden is also passed on. When novation is finalized, the original contract is deleted and a new one is created, in which a third party becomes responsible for all the obligations and rights of the original contract.
- Assignment vs. Delegation
Although delegation and assignment are similar in purpose, they are two different concepts. Delegation refers to transferring the obligation to a third party without an assignment contract . While in assignment an entire contract and its rights and benefits can be passed on, in delegation only a particular contractual task or activity is transferred.
Let’s look at an example . Lisa is a homeowner that wants to hire Michael with an independent contractor agreement to remodel her garage. He plans to do all the work himself, but he’s not a painter, so he wants to delegate the painting work to his friend Valentina.
In this example, the contract is between Lisa, the obligor, and Michael, the delegator. Valentina would then be known as a delegatee, she doesn’t assume responsibility for the contract nor does she receive the contractual benefits, which in this case would be monetary compensation. However, Michael may have a separate agreement with Valentina to pay her in return for her work.
It’s also important to note that some duties are so specific in nature that it’s not possible to delegate them. In addition, if a party wants to avoid delegation , it’s recommended to add a clause to prevent the other party from delegating their duties.
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Assignment of Contract – Assignable Contract Basics for Real Estate Investors
What is assignment of contract? Learn about this wholesaling strategy and why assignment agreements are the preferred solution for flipping real estate contracts.
Beginners to investing in real estate and wholesaling must navigate a complex landscape littered with confusing terms and strategies. One of the first concepts to understand before wholesaling is assignment of contract, also known as assignment of agreement or “flipping real estate contracts.”
An assignment contract is the most popular exit strategy for wholesalers, and it isn’t as complicated as it may seem. What does assignment of contract mean? How can it be used to get into wholesaling? Here’s what you need to know.
What Is Assignment of Contract?
How assignment of contract works in real estate wholesaling, what is an assignment fee in real estate, assignment of agreement pros & cons, assignable contract faqs.
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Assignment of real estate purchase and sale agreement, or simply assignment of agreement or contract, is a real estate wholesale strategy that facilitates a sale between the property owner and the end buyer.
This strategy is also known as flipping real estate contracts because that’s essentially how it works:
- The wholesaler finds a property that’s already discounted or represents a great deal and enters into a contract with the seller,
- The contract contains an assignment clause that allows the wholesaler to assign the contract to someone else (if they choose to!), then
- The wholesaler can assign the contract to another party and receive an assignment fee when the transaction closes.
Assignment of contract in real estate is a popular strategy for beginners in real estate investment because it requires very little or even no capital. As long as you can find an interested buyer, you do not need to come up with a large sum of money to buy and then resell the property – you are only selling your right to buy it .
An assignment contract passes along your purchase rights as well as your contract obligations. After the contract assignment, you are no longer involved in the transaction with no right to make claims or responsibilities to get the transaction to closing.
Until you assign contract to someone else, however, you are completely on the hook for all contract responsibilities and rights.
This means that you are in control of the deal until you decide to assign the contract, but if you aren’t able to get someone to take over the contract, you are legally obligated to follow through with the sale .
Assignment of Contract vs Double Closing
Double closing and assignment of agreement are the two main real estate wholesaling exit strategies. Unlike the double closing strategy, an assignment contract does not require the wholesaler to purchase the property.
Assignment of contract is usually the preferred option because it can be completed in hours and does not require you to fund the purchase . Double closings take twice as much work and require a great deal of coordination. They are also illegal in some states.
Ready to see how an assignment contract actually works? Even though it has a low barrier to entry for beginner investors, the challenges of completing an assignment of contract shouldn’t be underestimated. Here are the general steps involved in wholesaling.
Step #1. Find a seller/property
The process begins by finding a property that you think is a good deal or a good investment and entering into a purchase agreement with the seller. Of course, not just any property is suitable for this strategy. You need to find a motivated seller willing to accept an assignment agreement and a price that works with your strategy. Direct mail marketing, online marketing, and checking the county delinquent tax list are just a few possible lead generation strategies you can employ.
Step #2: Enter into an assignable contract
The contract with the seller will be almost the same as a standard purchase agreement except it will contain an assignment clause.
An important element in an assignable purchase contract is “ and/or assigns ” next to your name as the buyer . The term “assigns” is used here as a noun to refer to a potential assignee. This is a basic assignment clause authorizing you to transfer your position and rights in the contract to an assignee if you choose.
The contract must also follow local laws regulating contract language. In some jurisdictions, assignment of contract is not allowed. It’s becoming increasingly common for wholesalers to assign agreements to an LLC instead of an individual. In this case, the LLC would be under contract with the seller. This can potentially bypass lender objections and even anti-assignment clauses for distressed properties. Rather than assigning the contract to someone else, the investor can reassign their interest in the LLC through an “assignment of membership interest.”
Note: even the presence of an assignment clause can make some sellers nervous or unwilling to make a deal . The seller may be picky about whom they want to buy the property, or they may be suspicious or concerned about the concept of assigning a contract to an unknown third party who may or may not be able to complete the sale.
The assignment clause should always be disclosed and explained to the seller. If they are nervous, they can be assured that they will still get the agreed-upon amount.
Step #3. Submit the assignment contract for a title search
Once you are under contract, you must typically submit the contract to a title company to perform the title search. This ensures there are no liens attached to the property.
Step #4. Find an end buyer to assign the contract
Next is the most challenging step: finding a buyer who can fulfill the contract’s original terms including the closing date and purchase price.
Successful wholesalers build buyers lists and employ marketing campaigns, social media, and networking to find a good match for an assignable contract.
Once you locate an end buyer, your contract should include earnest money the buyer must pay upfront. This gives you some protection if the buyer breaches the contract and, potentially, causes you to breach your contract with the seller. With a non-refundable deposit, you can be sure your earnest money to the seller will be covered in a worst-case scenario.
You can see an assignment of contract example here between an assignor and assignee.
Step #5. Receive your assignment fee
The final step is receiving your assignment fee. This fee is your profit from the transaction, and it’s usually paid when the transaction closes.
The assignment fee is how the wholesaler makes money through an assignment contract. This fee is paid by the end buyer when they purchase the right to buy the property as compensation for being connected to the original seller. Assignment contracts should clearly spell out the assignment fee and how it will be paid.
An assignment fee in real estate replaces the broker or Realtor fee in a typical transaction as the assignor or investor is bringing together the seller and end buyer.
The standard real estate assignment fee is $5,000 . However, it varies by transaction and calculating the assignment fee may be higher or lower depending on whether the buyer is buying and holding the property or rehabbing and flipping.
The assignment fee is not always a flat amount. The difference between the agreed-upon price with the seller and the end buyer is the profit you stand to earn as the assignor. If you agreed to purchase the property for $150,000 from the seller and assign the contract to a buyer for $200,000, your assignment fee or profit would be $50,000.
In most cases, an investor receives a deposit when the Assignment of Purchase and Sale Agreement is signed with the rest paid at closing.
Be aware that assignment agreements can have a bad reputation . This is usually the case when the end buyer and seller are unsatisfied, realizing they could have sold higher or bought lower and essentially paid thousands to an investor who never even wanted to buy the property.
Opting for the standard, flat assignment fee is much more readily accepted by sellers and buyers as it’s comparable to a real estate agent’s commission or even much lower and the parties can avoid working with an agent.
Real estate investors enjoy many benefits of an assignment of contract:
- This strategy requires little or no capital which makes it a popular entry to wholesaling as investors learn the ropes.
- Investors are not added to the title chain and never own the property which reduces costs and the amount of time the deal takes.
- An assignment of agreement is easier and faster than double closing which requires two separate closings and two sets of fees and disclosures.
- Wholesaling can be a great tool to expand an investor’s network for future opportunities.
As with most things, there are important drawbacks to consider. Before jumping into wholesaling and flipping real estate contracts, consider the downsides .
- It can be difficult to work with sellers and buyers who are not familiar with wholesaling or assignment agreements.
- Some sellers avoid or decline assignment of contract offers because they are suspicious of the arrangement, think it is too risky, or want to know who they are selling to.
- There is a limited time to find an end buyer. Without a reliable buyer’s list, it can be very challenging to find a viable end buyer before the closing date.
- The end buyer may back out at the last minute. This may happen if they do not have owner’s rights until the contract is assigned or they do not want to pay an assignment fee.
- Not all properties are eligible for wholesaling like HUD and REO properties. There may be anti-assignment clauses or other hurdles. It is possible to get around this by purchasing the property with an LLC which can then be sold, but this is a level of complication that many wholesalers want to avoid.
- Assignors do not have owner’s rights. When the property is under contract, investors cannot make repairs or improvements. This makes it harder to assign a contract for a distressed property in poor condition.
- It can be hard to confirm an end buyer is qualified. The end buyer is responsible for paying the agreed upon price set by the seller and assignor. Many lenders do not handle assignment agreements which usually means turning to all-cash end buyers. Depending on the market, they can be hard to find.
In the worst-case scenario, if a wholesaling deal falls through because the end buyer backs out, the investor or assignor is still responsible for buying the property and must follow through with the purchase agreement. If you do not, you are in breach of contract and lose the earnest money you put down.
To avoid this worst-case scenario, be prepared with a good buyer’s list. You should only put properties under contract that you consider a good deal and you can market to other investors or homeowners. You may be able to get more time by asking for an extension to the assignment of contract while you find another buyer or even turn to other wholesalers to see if they have someone who would be a good fit.
What is the difference between assignor vs assignee?
In an assignment clause, the assignor is the buyer who then assigns the contract to an assignee. The assignee is the end buyer or final buyer who becomes the owner when the transaction closes. After the assignment, contract rights and obligations are transferred from the assignor to the assignee.
What Is an assignable contract?
An assignable contract in real estate is a purchase agreement that allows the buyer to assign their rights and obligations to another party before the contract expires. The assignee then becomes obligated to meet the terms of the contract and, at closing, get title to the property.
Is Assignment of Agreement Legal?
Assignment of contract is legal as long as state regulations are followed and it’s an assignable contract. The terms of your agreement with the seller must allow for the contract to be assumed. To be legal and enforceable, the following general requirements must be met.
- The assignment does not violate state law or public policy. In some states and jurisdictions, contract assignments are prohibited.
- There is no assignment clause prohibiting assignment.
- There is written consent between all parties.
- The property does not have restrictions prohibiting assignment. Some properties have deed restrictions or anti-assignment clauses prohibiting assignment of contract within a specific period of time. This includes HUD properties, short sales, and REO properties which usually prohibit a property from being resold for 90 days. There is potentially a way around these non-assignable contracts using an LLC.
Can a non-assignable contract still be assigned?
Even an non-assignable contract can become an assignable contract in some cases. A common approach is creating an agreement with an LLC or trust as the purchaser. The investor can then assign the entity to someone else because the contractual rights and obligations are the entity’s.
Assignment agreements are not as complicated as they may sound, and they offer an excellent entry into real estate investing without significant capital. A transaction coordinator at Transactly can be an invaluable solution, no matter your volume, to keep your wholesaling business on track and facilitate every step of the transaction to closing – and your assignment fee!
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Assignment Fee - Deductible or Need to Be Capitalized
So, we bought a distressed home and rehabbed it, now about to rent. I understand the purchase and rehab cost have to be capitalized and minus land value, depreciated over 27.5 years.
My question is one of the assignment fee paid to the individual who got the property under the contract and brought us the deal. The fee was paid entirely outside the transaction for purchase of the property. So, I am wondering, can that assignment fee be counted as a cost of doing business and deducted in full for the year. In other words, not count it as part as part of the capitalized cost?
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Assignment is a legal term whereby an individual, the “assignor,” transfers rights, property, or other benefits to another known as the “ assignee .” This concept is used in both contract and property law. The term can refer to either the act of transfer or the rights /property/benefits being transferred.
Under contract law, assignment of a contract is both: (1) an assignment of rights; and (2) a delegation of duties , in the absence of evidence otherwise. For example, if A contracts with B to teach B guitar for $50, A can assign this contract to C. That is, this assignment is both: (1) an assignment of A’s rights under the contract to the $50; and (2) a delegation of A’s duty to teach guitar to C. In this example, A is both the “assignor” and the “delegee” who d elegates the duties to another (C), C is known as the “ obligor ” who must perform the obligations to the assignee , and B is the “ assignee ” who is owed duties and is liable to the “ obligor ”.
(1) Assignment of Rights/Duties Under Contract Law
There are a few notable rules regarding assignments under contract law. First, if an individual has not yet secured the contract to perform duties to another, he/she cannot assign his/her future right to an assignee . That is, if A has not yet contracted with B to teach B guitar, A cannot assign his/her rights to C. Second, rights cannot be assigned when they materially change the obligor ’s duty and rights. Third, the obligor can sue the assignee directly if the assignee does not pay him/her. Following the previous example, this means that C ( obligor ) can sue B ( assignee ) if C teaches guitar to B, but B does not pay C $50 in return.
(2) Delegation of Duties
If the promised performance requires a rare genius or skill, then the delegee cannot delegate it to the obligor. It can only be delegated if the promised performance is more commonplace. Further, an obligee can sue if the assignee does not perform. However, the delegee is secondarily liable unless there has been an express release of the delegee. That is, if B does want C to teach guitar but C refuses to, then B can sue C. If C still refuses to perform, then B can compel A to fulfill the duties under secondary liability.
Lastly, a related concept is novation , which is when a new obligor substitutes and releases an old obligor. If novation occurs, then the original obligor’s duties are wiped out. However, novation requires an original obligee’s consent .
Under property law, assignment typically arises in landlord-tenant situations. For example, A might be renting from landlord B but wants to another party (C) to take over the property. In this scenario, A might be able to choose between assigning and subleasing the property to C. If assigning , A would be giving C the entire balance of the term, with no reversion to anyone whereas if subleasing , A would be giving C for a limited period of the remaining term. Significantly, under assignment C would have privity of estate with the landlord while under a sublease, C would not.
[Last updated in May of 2020 by the Wex Definitions Team ]
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Assignment of Contract
Jump to section, need help with a contract agreement, what is an assignment of contract.
An assignment of contract is a legal term that describes the process that occurs when an existing contract assignee wishes to transfer their contractual obligations to another party. 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.
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. It must also be signed by both the incoming and outgoing parties.
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.
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 buy 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.
Meet some of our Lawyers
After starting my professional career in Human Resources in the Healthcare and Non-profit fields, I decided to expand my options and attended law school, passing the North Carolina bar in 2016. Since then, I have practiced in-house for healthcare companies, in the civil rights arena, and run my own business. I am currently looking to return to my legal roots and am excited to practice business law again.
I'm in general practice with an emphasis on real estate, litigation, and contracts
A veteran real estate attorney with experience ranging from drafting and negotiating land development agreements, to purchase and sale and lease agreements for multifamily and large commercial proects.
Transactional attorney with experience in drafting, reviewing and negotiating contracts related and ancillary to commercial leasing. Licensed in CA and NY.
Loi Laing is a seasoned contract lawyer with a meticulous eye for detail and a passion for delivering excellence. Currently a legal consultant for KPMG, most recently she has also worked in San Francisco for Silicon Valley startups. Holding a Juris Doctorate from Florida State University College of Law, Loi has also studied law at Oxford University and the University of the West Indies. Throughout her career, Loi has a proven track record in meticulously reviewing and drafting contracts across various legal domains. She possesses a robust legal foundation that spans commercial business, tech, entertainment, and real estate law.
My name is Anem Shaikh. I am a licensed Attorney in New York State. I have experience in drafting legal documents and representing corporate clients. I have worked in healthcare law, employment law, real estate law, and personal injury. I look forward to working with you.
10 years of experience in business, tech and privacy law. Currently running a faith-based non-profit law firm for people engaged in local recovery programs.
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other helpful articles
- How much does it cost to draft a contract?
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- How do Contract Lawyers charge?
- Business Contract Lawyers: How Can They Help?
- What to look for when hiring a lawyer
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