Most people understand the importance of contracts in financial dealings and, in particular, real estate closings. Real estate investors must be familiar with various contracts to negotiate and execute property deals. If you're new to investing, one lesser-known type of agreement you may encounter is an assignment transaction, in which one party transfers the rights to purchase a property to another. In this arrangement, an investor starts the purchase process, but instead of following through and buying the property, the investor finds another buyer and transfers the right to buy to that person. The following guide explores this financial option so you can determine if this transaction type makes sense for you. 

What Are the Benefits of an Assignment Contract?

Assignment contracts can be efficient and profitable in many real estate investment transactions. This approach offers a quick way to earn a profit, as the assignor typically receives an assignment fee for locating a final buyer for a property. Furthermore, since they only require one closing, assignment contracts are more cost-effective than a double-closing situation, making them more affordable.

What to Consider When Using Assignment Transactions

When contemplating using an assignment transaction for a real estate closing, there are two factors to keep in mind: prohibitions in the contract and restrictions that apply to specific properties. You'll want to ensure that there are no restrictions on future assignments in your agreement with the estate seller since this could lead to significant problems in the future. For this reason, it's best to hire an attorney to draft your contract for an assignment transaction.

Assignment transactions cannot be utilized for all purchases. For example, they may not be used to purchase HUD homes (properties purchased by the Department of Housing and Urban Development), real estate owned or REOs (foreclosed-on properties), or listed properties. REO properties, for example, must be held for 90 days before being resold.

Is an Assignment of Contract Legal?

Assignment contracts are legal when they are correctly written and executed. Wholesalers must abide by local laws governing contract language, as some areas have greater restrictions than others. It's also becoming more typical to assign contracts to a legal business or LLC rather than an individual in real estate closings to avoid bank objections. You'll also need formal approval from all parties specified in the contract, and no clauses that break the law can be included.

If you're investing in real estate for the first time, it's important to collaborate with experts in the field. For over two decades, Innovative Closing Solutions in Winston Salem, NC, has helped investors manage various aspects of real estate closings, including seller financing, title requests and searches, contracts-for-deed, hard money loans, and private loans. They have fully-trained staff and experts who are focused on delivering fast results. Visit the website to learn more about them, or call (336) 793-1953 to schedule a consultation.