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Hey Moguls, Steph Davis here…
Today we’re going to go back to basics. Or, for some of you, this may be totally new. So for those of you who are newbies and can’t quite get your head around this stuff about assigning a contract – this is the lesson for you.
Knowing how to assign a real estate contract is something you must understand in order to grow your business.
Let’s Demystify
You’d be surprised at how often I get this question from newbies. Which means those of us who’ve been around awhile shouldn’t take for granted that everyone knows how to do this. That’s why I’m taking this opportunity to demystify this process. And I’m going to do it in a simple and straightforward way.
Basically…
You first you put the sale under contract using a Purchase and Sale Agreement, then you assign that contract to the end buyer. This process eliminates the need for any double or simultaneous closing – there is only one simple transaction.
An Easy Example
Let’s say you have a deal worked out with your seller, and you’re going to buy the property for $50,000. Then you find an end buyer who has agreed to pay you $55,000 for the property.
You put the property under contract with the seller for the $50K. Next, you assign that contract to your end buyer for $5K using the Assignment of Contract Agreement form.
This is a simple, one-page document containing a couple of short paragraphs. It states that you are assigning all of your rights (the rights that are laid out in the Purchase and Sale Agreement), over to the buyer for X-amount of dollars. In this case that would be $5K.
You and your end buyer will sign the Assignment of Contract Agreement at which time you’ll collect a deposit from the buyer. You will also supply the end buyer with a copy of the Purchase and Sale Agreement that you have with the seller.
Take both of those documents to the title company and they will take care of the details from there. You don’t even have to show up at the closing. Your funds will be dispersed to you after your end buyer closes on the sale.
All in all, it’s a very simple process. This means there’s seldom, if ever, a need for a simultaneous closing.
Other Helpful Stuff
1. Some investors believe that you must have the words “and/or assigns” on your Purchase Contract in order for it to be assignable. Actually, contract law states that it’s automatically assignable from the get-go unless the contract itself, or an addendum to the contract, states that it’s not assignable.
2. There are other deals that you cannot assign, which would include REOs (bank foreclosures), HUD properties or short sales. (These contracts are worded specifically forbidding the assignment of the contract. For these, you will have to do the double closing – or the simultaneous closing – instead.)
3. When you’re doing an assignment, make sure the buyer puts down at least $2,000 so they have some skin in the game. If they’re not comfortable writing the check to you, they could simply make it out to the closing company.
Assigned contracts typically work best with the common, ordinary, mom-and-pop sellers. They’re very effective, and definitely the cheapest and simplest way to wholesale properties.
Awesome Power Pack Tools
For those of you who are Mogul Elite members, I’ve included a FREE downloadable assignment contract that you can use. It’s from my good buddy, JP Moses, who quarterbacks so many of the other awesome lessons here on Real Estate Mogul. Enjoy.
Get a clear understanding of the steps required to create and execute an Assignment of Contract. (You’ll be using this method often.)
Obtain and keep on hand copies of the document needed – the Assignment of Contract Agreement.
Stay in touch, constantly, with all involved parties until the check is in your hand – this includes the title company.
Steph Davis
started wholesaling in October of 2006. At the time, she had been stuck at a job bartending for the past 10+ years. She was broke and miserable, and desperately wanted out of the bar scene, which I had been stuck in for the last 10+ years.
She ended up closing four wholesale deals by the end of 2006.
Since then, she's closed more deals than she can count, has written two best selling wholesaling courses (Flip This REO and The Cash Buyer Ninja) and continues to teach others how to wholesale with videos, interviews, and as much useful information as she possibly can, because she knows what it’s like to be a broke beginner, struggling to get that first deal.