assignment deal real estate

• Coaching Team
• Investor Tools
• Student Success

Real Estate Investing Strategies

• Real Estate Business
• Real Estate Markets
• Real Estate Financing
• REITs & Stock Investing

How To Navigate The Real Estate Assignment Contract

What is assignment of contract?

Assignment of contract vs double close

How to assign a contract

Assignment of contract pros and cons

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

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

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

What Is A Real Estate Assignment Contract?

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

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

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

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

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

What Is An Assignment Fee In Real Estate?

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

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

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

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

Assignment Contract Vs Double Close

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

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

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

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

Flipping Real Estate Contracts

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

Is An Assignment Of Contract Legal?

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

When Will Assignments Not Be Enforced?

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

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

How To Assign A Real Estate Contract

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

Find the right property

Acquire a real estate contract template

Submit the contract

Assign the contract

Collect the fee

1. Find The Right Property

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

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

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

Direct Mail

Real Estate Meetings

Local Marketing

2. Acquire A Real Estate Contract Template

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

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

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

3. Submit The Contract

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

4. Assign The Contract

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

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

5. Collect The Fee

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

Assignment of Contract Pros

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

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

Assignment of Contract Cons

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

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

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

Assignment of Contract Template

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

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

Click the banner below to take a 90-minute online training class and get started learning how to invest in today’s real estate market!

Wholetailing: A Guide For Real Estate Investors

What is chain of title in real estate investing, what is a real estate fund of funds (fof), reits vs real estate: which is the better investment, multi-family vs. single-family property investments: a comprehensive guide, what is reverse wholesaling: a guide for real estate investors.

Assignment 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.

An assignment or assignment of contract is a way to profit from a real estate transaction without 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 (acting as a middleman in this case) 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. In summary, it looks like this:

• Find the right property.
• Get a purchase agreement signed.
• Find an end buyer.
• Assign the contract.
• Close the transaction and collect your assignment fee.

We describe each step in the process below.

1. 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 attract buyers and cover their assignment fee.

RELATED: What is “Driving for Dollars” and How Does It Work?

2. 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 specific, clear language that allows the wholesaler (for example, you) to assign their rights in the agreement to a third party.

Note that most standard purchase agreements do not include this language by default. If you plan to assign this contract, make sure this language is included. You can consult an attorney to cover the correct verbiage in a way that the seller understands it.

RELATED: Wholesaling Made Simple! A Comprehensive Guide to Assigning Contracts

This can’t be stressed enough: It’s extremely 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 on or before they sign the original purchase agreement.

3. Find an End Buyer

This is the other half of a wholesaler’s job—marketing to find buyers. Once they find an end buyer, the wholesaler can assign the contract to the new party and work with the original seller and the end buyer to schedule a closing date.

4. Assign the Contract

Assigning the contract works through a simple assignment agreement. This agreement allows the end buyer to step into the wholesaler’s shoes as the buyer in the original contract.

In other words, this document “replaces” the wholesaler with the new end buyer.

Most assignment contracts include language for a nonrefundable deposit from the end buyer, which protects the wholesaler if the buyer backs out. While you can download assignment contract templates online, most experts recommend having an attorney review your contracts. The assignment wording has to be precise and comply with applicable local laws to protect you from issues down the road.

5. Close the Transaction and Collect the Assignment Fee

Finally, you will receive your assignment fee (or wholesale fee) when the end buyer closes the deal.

The assignment fee is often the difference between the original purchase price (the price that the seller agreed with the wholesaler) and the end buyer’s purchase price (the price the wholesaler agreed with the end buyer), but it can also be a percentage of it or even a flat amount.

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.

IMPORTANT: the end buyer will see precisely how much the assignment fee is. This is because they must sign two documents that show the original price and the assignment fee: the closing statement and the assignment agreement, respectively, to close the transaction.

In many cases, if the assignment fee is a reasonable amount relative to the purchase price, most buyers won’t take any issue with the wholesaler taking their fee—after all, the wholesaler made the deal happen, and it’s compensation for their efforts. However, if the assignment fee is too big (such as the wholesaler taking $20,000 from an original purchase price of $10,000, while the end buyer buys it for $50,000), it may ruffle some feathers and lead to uncomfortable questions.

In these instances where the wholesaler has a substantially higher profit margin, a wholesaler can instead do a double closing . In a double closing, the wholesaler closes two separate deals (one with the seller and another with the buyer) on the same day, but the seller and buyer cannot see the numbers and overall profit margin the wholesaler makes between the two transactions. This makes a double closing a much safer way to conclude a transaction.

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.

Related terms

Double closing, wholesaling (real estate wholesaling), transactional funding.

Bonus:  Get a FREE copy of the INVESTOR HACKS ebook when you subscribe!

Free Subscriber Toolbox

Want to learn about the tools I’ve used to make over $40,000 per deal ? Get immediate access to videos, guides, downloads, and more resources for real estate investing domination. Sign up below for free and get access forever.

Join our growing community

subscribers

Welcome to REtipster.com

We noticed you are using an ad blocker.

We get it, too much advertising can be annoying.

Our few advertisers help us continue bringing lots of great content to you for FREE.

Please add REtipster.com to your Ad Blocker white list, to receive full access to website functionality.

Thank you for supporting. We promise you will find ample value from our website. 

Thanks for contacting us! We will get in touch with you shortly.

• Dec 13, 2023

Understanding Assignment of Contract in Real Estate Wholesaling

Real estate wholesaling is a popular strategy for new investors who want to get their feet wet. The term "wholesaling" refers to the process of buying homes and reselling them quickly without making any significant repairs. One crucial aspect of this strategy is the assignment of contract, which allows the wholesaler to profit from the transaction without ever owning the property.

What is Assignment of Contract?

In simple terms, an assignment of contract in real estate is a legal agreement that allows the investor (or 'assignor') to transfer their rights and obligations of the property purchase contract to another party (or 'assignee'). This means that the assignee steps into the shoes of the assignor and completes the transaction with the original seller.

The assignor's primary role is to find a motivated seller, negotiate a purchase price, and then find a buyer willing to pay a higher price for the property. The difference between the contract price with the seller and the amount paid by the end buyer is the wholesaler's profit.

How Does it Work?

Here are the basic steps involved in an assignment of contract:

1. Find a Motivated Seller: The first step is to find a homeowner who wants to sell their property quickly. This could be due to various reasons such as financial distress, job relocation, divorce, or a need to liquidate assets.

2. Negotiate a Purchase Price: Once a motivated seller is identified, the wholesaler negotiates a purchase price and signs a purchase agreement with the seller. This agreement includes an "assignment clause" which gives the wholesaler the right to assign the contract to another buyer.

3. Find an End Buyer: The wholesaler then finds an end buyer who is willing to buy the property at a higher price. This could be a rehabber looking for a fix-and-flip opportunity, or a landlord seeking rental properties.

4. Assign the Contract: The wholesaler then executes an assignment agreement with the end buyer, transferring all rights and obligations of the original contract to them. The assignee pays an assignment fee to the wholesaler, which is typically the difference between the original purchase price and the price the end buyer agrees to pay.

5. Close the Deal: Finally, the deal is closed with the help of a title company or attorney. The original seller receives the agreed-upon price from the original contract, the end buyer gets the property, and the wholesaler walks away with the assignment fee.

How to Fill Out an Assignment of Contract

Download the Assignment of Contract for Free

REIPro is a comprehensive tool for real estate investors that not only provides essential contracts like the Assignment of Contract but also includes detailed training videos. With REIPro's Contract Writer, users can easily fill in the blanks to customize their documents and then download, print, or email them as needed. This platform makes it simpler for investors to understand and implement complex strategies such as contract assignments in real estate wholesaling. Click here to access the Assignment of Contract.

Legalities and Ethics

While the assignment of contract is a legitimate real estate strategy, it's not without controversy. Some people view wholesalers as middlemen who profit without adding value. However, ethical wholesalers can provide a valuable service by connecting motivated sellers with investors.

It's also important to note that the legality of contract assignment can vary by state. In some jurisdictions, you may need a real estate license to wholesale properties. Therefore, it's crucial to understand your local laws and regulations before getting started.

In conclusion, assignment of contract is a powerful tool in real estate wholesaling. It allows investors to profit from real estate transactions without needing to buy, own, or repair properties. As with any investment strategy, education and due diligence are vital to success.

Remember, the goal is to create win-win situations for all parties involved: a quick sale for the distressed seller, a good deal for the end buyer, and a fair profit for the wholesaler. 

• Wholesaling

Recent Posts

Wholesaling Real Estate in Florida: Your Starting Guide

5 Creative Ways to Find Wholesale Deals for Investors

Insider Secrets to Fast-Tracking Success in Real Estate Wholesaling

• Deals Funded
• Deals in Process

Testimonials

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.

In-Depth Definition

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.”

Apply For Financing

Assignment provision.

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.

Assignment Fee

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.

Assignor Intent

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.

Enforceability

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.

Related Articles

• Intercreditor Agreements – Everything You Need to Know
• Alienation Clause – Everything You Need to Know
• Loan Defeasance – Everything You Need to Know
• Cross Default – Complete Guide

Other Resources

• Adjustable Rate Mortgage
• Aircraft Financing Terms & Loan – Complete Guide
• Alienation Clause – Everything You Need to Know
• ARM Components
• ARV – After Repair Value – Everything You Need to Know
• Assignment Clause – Everything You Need to Know
• Average Daily Rate (ADR) Formula – Complete Guide
• Balloon Mortgages
• Blanket Mortgage
• Cap Rate Simplified for Commercial Real Estate (+ Calculator)
• Cash Coverage Ratio | Complete Guide + Calculator
• Cash Out Refinance on Investment Property – Complete Guide
• Closing Costs
• CMBS Loans: Guide to Commercial Mortgage-Backed Securities
• Commercial Adjustable Rate Loan Indexes
• Commercial Real Estate Appraisals – Everything You Need to Know
• Commercial Real Estate Syndication – Ultimate Success Guide
• Contingency Reserve – Everything You Need to Know
• CRE Loans – What Nobody Tells You About Commercial Lending
• Cross Default – Everything You Need to Know
• Debt Service Coverage Ratio
• Debt vs Equity Financing
• DIP Financing
• EBITDA Margin – Ultimate Guide
• Effective Gross Income (+ Calculator)
• Equity Kicker – Everything You Need to Know
• Fixed Rate Loans
• Full Service Gross Lease – Everything You Need to Know
• Gap Funding Commercial Real Estate – Pros & Cons
• Ground Lease – Everything You Need to Know (+ Calculator)
• Guide to Floor Area Ratio, Floor Space Index & Plot Ratio
• Hard Costs vs Soft Costs – Commercial Real Estate Guide
• Hard Money vs Soft Money Loans in Real Estate
• How Much to Borrow
• Hypothecation Agreements – Everything You Need to Know
• Industrial Gross Lease
• Intercreditor Agreements – Everything You Need to Know
• Interest Only Mortgage
• Lines of Business
• Loan Defeasance
• Loan Proceeds – Everything You Need To Know
• Loan to Cost Ratio
• Loss to Lease – Everything You Need to Know
• Market Links
• Master Lease Agreements
• Master Planned Communities
• Mergers & Acquisitions Seller Intake Questionnaire
• Mergers & Acquisitions Buyer Intake Questionnaire
• Mini Perm Loan – Complete Guide
• MIRR Guide | Modified Internal Rate of Return (+ Calculator)
• Modified Gross Lease – Everything You Need to Know
• Mortgage Programs
• Net Effective Rent (+ Calculator)
• Net Income and NOI
• Net Leases (Single, Double, Triple)
• Operating Expense Ratio – Ultimate Guide (+ Calculator)
• Pari Passu – Everything You Need to Know
• Partially Amortized Loan – Complete Guide
• Potential Gross Income – Everything You Need to Know
• Preferred Equity in Real Estate – Complete Investor’s Guide
• Preferred Shares – Everything You Need to Know
• Property Interest – Everything You Need to Know
• Recourse Loans – Complete Guide
• Restrictive Covenants – Everything You Need to Know
• Reverse 1031 Exchange – Everything You Need to Know

Ronny was a pleasure to work with and is extremely knowledgeable. His hard work was never ending until the job was done. They handled a complex lease and guided us through entire process, including the paperwork. Not to mention a below market lease rate and more than all the features we needed in a site. We later used Assets America for a unique equipment financing deal where once again Ronny and team exceeded our expectations and our timeline. Thank you to Assets America for your highly professional service!

Great experience with Assets America. Fast turn around. Had a lender in place in 30 minutes looking to do the deal. Totally amazing. Highly recommend them to anyone looking for financing. Ronny is fantastic. Give them a call if the deal makes sense they can get it funded. Referring all our clients.

Assets America guided us every step of the way in finding and leasing our large industrial building with attached offices. They handled all of the complex lease negotiations and contractual paperwork. Ultimately, we received exactly the space we needed along with a lower than market per square foot pricing, lease length and end of term options we requested. In addition to the real estate lease, Assets America utilized their decades-long financial expertise to negotiate fantastic rates and terms on our large and very unique multimillion dollar equipment purchase/lease. We were thankful for how promptly and consistently they kept us informed and up to date on each step of our journey. They were always available to answer each and every one of our questions. Overall, they provided my team with a fantastic and highly professional service!

Assets America was responsible for arranging financing for two of my multi million dollar commercial projects. At the time of financing, it was extremely difficult to obtain bank financing for commercial real estate. Not only was Assets America successful, they were able to obtain an interest rate lower than going rates. The company is very capable, I would recommend Assets America to any company requiring commercial financing.

Assets America was incredibly helpful and professional in assisting us in purchasing our property. It was great to have such knowledgeable and super-experienced, licensed pros in our corner, pros upon which we could fully rely. They helped and successfully guided us to beat out 9 other competing offers! They were excellent at communicating with us at all times and they were extremely responsive. Having them on our team meant that we could always receive truthful, timely and accurate answers to our questions. We would most definitely utilize their services again and again for all of our real estate needs.

Assets America is a great company to work with. No hassles. Recommend them to everyone. Professional, fast response time and definitely gets the job done.

Ronny at Assets America has been invaluable to us and definitely is tops in his field. Great experience. Would refer them to all our business associates.

We were very pleased with Assets America’s expertise and prompt response to our inquiry. They were very straight forward with us and helped a great deal. We referred them to all our business associates.

I’ve worked with this company for decades. They are reputable, knowledgeable, and ethical with proven results. I highly recommend them to anyone needing commercial financing.

Ronny was incredibly adept and responsive – top-notch professional who arranged impressive term sheets.

Assets America helped us survive a very difficult time and we most definitely give them 5 stars!

Ronny was very friendly and though we were unable to make something happen at the moment he gave me some direction to go.

My business partner and I were looking to purchase a retail shopping center in southern California.  We sought out the services of Ronny, CFO of Assets America.  Ronny found us several commercial properties which met our desired needs.  We chose the property we liked best, and Ronny went to work. He negotiated very aggressively on our behalf. We came to terms with the Seller, entered into a purchase agreement and opened escrow.  Additionally, we needed 80 percent financing on our multimillion-dollar purchase.  Assets America also handled the commercial loan for us.  They were our One-Stop-Shop. They obtained fantastic, low, fixed rate insurance money for us.  So, Assets America handled both the sale and the loan for us and successfully closed our escrow within the time frame stated in the purchase agreement.  Ronny did and performed exactly as he said he would. Ronny and his company are true professionals.  In this day and age, it’s especially rare and wonderful to work with a person who actually does what he says he will do.  We recommend them to anyone needing any type of commercial real estate transaction and we further highly recommend them for any type of commercial financing.  They were diligent and forthright on both accounts and brought our deal to a successful closing.

Questionnaire

Join Our Mastermind For Real Estate Investors

Advance your investing skills with expert guidance. weekly coaching calls and community support await..

• Learn from experienced investors.
• Weekly Coaching Calls

Understanding the Concept of an Assignment Fee in Real Estate

Navigating the realm of real estate transactions can often feel like deciphering a complex puzzle, especially for those who are early on their property journey. A concept that can confuse professionals and individuals involved in transactions alike is the idea of an assignment fee in real estate—something that comes into play in various scenarios. In the context of real estate, an assignment fee is an essential concept to grasp, bridging the gap between  creative financing  and the traditional purchase and sale of properties.

What is Assignment in Real Estate?

To understand an assignment fee in real estate, you first have to understand what an assignment is. An assignment contract is essentially the document that gives someone the right to purchase a property. The assignment fee refers to the payment made to an individual, generally known as an assignor, for transferring their rights and obligations under a pre-existing real estate assignment contract to another party, known as the assignee. 

This transaction is particularly prevalent in the practice of  real estate wholesaling . In these transactions, an individual will secure a contract to purchase a property and then assign that same contract to an end buyer, charging a fee for the convenience and the opportunity they present.

A contract assignment fee is a strategic tool for those looking to leverage lucrative opportunities within the market without needing a significant capital investment. It allows for flexibility in the investment realm, enabling professionals to generate income from real estate deals without the traditional barriers of entry. This means people can make headway in their careers without having to obtain mortgage loans or conduct extensive renovations.

In essence, the assignment fee is the financial reflection of the value that the assignor brings to the table in a transaction. The assignor is a useful party for both buyers and sellers, helping the process along by identifying a potentially profitable deal, negotiating terms, and then passing on the right to execute the deal to a suitable party. Understanding this concept is crucial for real estate investors at all stages of their careers, especially those interested in using wholesale strategies and creative financing options.

What is an Assignment Fee in Real Estate?

The assignment fee in real estate is a concept rooted in the overarching principle of a contractual rights transfer. It represents the price that an assignee, someone interested in purchasing property, pays to the assignor for the rights to acquire said property under the terms the assignor has already negotiated with the seller. To make sure you get the right fee for the assignment of a contact, you need to understand the mechanics of how they work. 

This section expands on how assignment fees function in real estate transactions and delves into the factors that influence their amounts.

Explanation of How Assignment Fees Work in Real Estate

When an investor or a wholesaler, known in this case as the assignor, enters into a purchase agreement with a property seller, they acquire the legal right to buy the property at some negotiated, agreed-upon terms. However, instead of completing the purchase themselves, the assignor then finds another buyer, known as the assignee, who is interested in taking over the contract to eventually own the property.  This is when assignment fees come into play. 

The assignee must pay an assignment fee to the assignor for the right to purchase the property. Only once this fee is paid can the assignee step into the shoes of the original buyer, then proceed to close the deal with the seller. The original contract to buy is thus “assigned” from the assignor to the assignee, who from then on becomes responsible for fulfilling its terms.

Factors That Determine the Amount of Assignment Fees

The amount, or monetary value, of the assignment fee can vary greatly from deal to deal, being influenced by a range of factors, which we’ve broken down below:

Property Value and Equity:  Appropriately, the value and equity of the property will inform the assignment fee. A property with high value or substantial equity typically commands a higher assignment fee and vice versa.

Market Demand:  Consider  overarching market trends  when ascertaining an appropriate assignment fee. For example, in a seller’s market with higher demand for properties, assignment fees can increase because of plentiful competition among buyers.

Deal Profitability:  Even in the cases of lower-value properties, the nature of the deal itself will impact the assignment fee. This means that the more profitable a deal appears to be, the higher the fee that an assignor can command.

Negotiation Skills:  In a similar vein to the impact that profitability can have, negotiation skills can also change the shape of an assignment fee. The ability of the assignor to negotiate deals on both ends can directly impact their fee amount, with skilled negotiators often being able to secure higher fees.

Timeframe:  Time is money, and in the case of a wholesale assignment contract, this can be especially true. If the assignor negotiates the situation and closes the deal quickly, they might be able to command a higher fee for the increased convenience of a speedy transaction.

Comparison of Assignment Fees with Other Real Estate Transaction Costs

Assignment fees differ from the costs associated with various other real estate transactions in a variety of ways: 

Earnest Money vs. Assignment Fee:  Earnest money is a kind of deposit made to demonstrate the buyer’s seriousness about acquiring a property. This fee can typically be refunded under certain conditions or applied to the purchase at closing. On the other hand, an assignment fee is a non-refundable payment made to the assignor, specifically for the right to take over the contract.

Closing Costs vs. Assignment Fee:  Closing costs can encompass a variety of fees that buyers and sellers pay at the end of a real estate transaction. These fees can include things such as those associated with title searches, real estate attorney’s fees, and credit report charges. Assignment fees are separate from these, only ever being paid to the assignor for the contract rights.

Commission vs. Assignment Fee:  Real estate agents earn their living through commissions based on the property’s sale price, paid by the seller, generally from their earnings through making the sale. In contrast, an assignment fee is paid by the assignee to the assignor and is not related to the sale price or commission.

Understanding the nature of assignment fees, such as when they’re applicable, how they are calculated in relation to a transaction, and how they compare to other common transaction costs, is essential for anyone involved in real estate investing. This level of understanding is particularly vital in strategies such as wholesaling, where such fees are part and parcel of the process.

Pros and Cons of Assignment Fees

Assignment fees in real estate can be positive elements of transactions for sellers and investors while posing some notable challenges depending on the perspective of all parties involved, including the buyer. Below, we explore the advantages and disadvantages for the enactors of these transactions, as well as the risks and challenges that come with assignment fees.

Advantages for Sellers and Investors

For sellers:.

Quick Sales:  Sellers benefit from the existence of assignment fees as they can do wonders for speeding up the transaction. Wholesaling and the assignment fees that come with it are especially viable solutions when a seller wants to shift their asset quickly. Investors or fellow wholesalers who offer to pay these fees often aim to close deals rapidly.

Fewer Hurdles:  Sellers might avoid some traditional selling hurdles when embracing the nature of wholesaling and assignment fees. In the standard selling cycle, sellers might have to go through various stages, such as multiple showings or a buyer’s own financial approval process. These processes can be skipped altogether when dealing with investors ready to pay an assignment fee.

For Investors:

Profitability:  Investors or wholesalers can use assignment fees as their primary source of income. As it sidesteps the traditional processes of investing and reselling properties, wholesalers stand to make a profit through the assignment fee without having to close on the property themselves. By embracing this system, they also avoid closing costs and the need for financing.

Less Capital:  Wholesaling is a great method for generating income, without needing the same level of seed investment. Since the investor doesn’t need to purchase the property outright, they generally just have to pay a small (often refundable) deposit for the contract; there is less capital required upfront compared to traditional real estate investments.

Flexibility:  Because of the nature of deals that use assignment fees, investors can back out of a particular deal at any time. This can be achieved by offering and assigning the contract to another, more suitable buyer if the deal doesn’t fit their investment strategy or if they cannot secure financing.

Disadvantages for Buyers and Sellers

For buyers:.

Increased Cost:  Assignment fees do often increase the overall cost for the end buyer, as it becomes their responsibility to cover both the property’s agreed-upon price and the assignment fee. In some cases, the assignment fee can be taken from the overall sale price, but this isn’t common, meaning the speedier sale usually comes with an inflated price tag. 

Transparency Issues:  Buyers in these situations can often find it challenging to get full transparency regarding the property’s conditions or the original contract terms if not properly disclosed by the assignor. This shouldn’t be an issue, as long as the wholesaler or assignor does their job properly, but buyers should make sure to vet any collaborators carefully. 

Potential for Overextension:  Sellers may encounter issues if they work with the wrong wholesaler or investor. In some cases, an inexperienced investor can overextend and find it difficult to find a buyer to whom they can assign the contract, slowing down the transaction process and possibly reversing it. 

Market Misrepresentation:  Sellers could face the challenges of market misrepresentation if the assignor markets the property incorrectly or unethically, leading to potential legal challenges. For example, if the assignor lies about the property’s amenities, uses  unrealistic photography , or overvalues it, buyers might respond with legal action. 

Potential Risks and Challenges with Assignment Fees

Legal and Ethical Considerations:  The legality of assignment fees, much like many other aspects of the real estate market,  varies from region to region . Along with the legal side of things, there may also be ethical considerations to consider if parties are not fully informed of the contract terms and fees involved.

Market Fluctuations:  Market conditions can change rapidly—need we remind you of what happened to the housing market in 2008? This means that if the property value decreases or interest rates increase, it will likely become more challenging for the assignor to find a buyer willing to pay the fee on top of the existing property price.

Contractual Risks:  If the assignee fails to close the deal, the assignor might end up legally obligated to purchase the property under the original contract terms. Considering the reasons that most investors choose to embrace wholesaling and assignment fees, this could pose a significant financial risk that they’re not ready to incur.

Reputational Risks:  Assignors who consistently charge unnecessarily high assignment fees might gain a negative reputation in the real estate community among potential clients and fellow professionals alike. It’s important to consider what a fair, mutually beneficial fee should be to avoid potentially negatively affecting future business.

Complexity in Transactions:  Assignment fees add a level of complexity to real estate transactions, which are already fairly complicated at the best of times. There may be misunderstandings or disputes between the involved parties over the terms of the contract, the condition of the property, or the responsibilities each party has.

Both sellers and investors involved in wholesaling and assignment in real estate need to weigh the potential for quick and profitable transactions against the complexities and risks assignment fees introduce. It is crucial for every party involved to conduct suitable due diligence, operate transparently, and possibly seek professional legal counsel to ensure the process is conducted legally and ethically.

Legal and Ethical Considerations

The use of assignment fees in real estate transactions is full of potential, being a viable part of a strategic investment plan. However, while assignment fees and the deals they’re attached to can be highly lucrative, they also come with the potential for legal and ethical quandaries. Here, we delve into the legal regulations and ethical considerations that assignors should consider, highlighting potential issues that could arise from the misuse of assignment fees.

Legal Regulations and Requirements

Regulatory landscape:.

Disclosure Requirements:  Many jurisdictions require the full disclosure of an assignment fee to all parties involved in a transaction, ensuring no one feels like they’ve missed out on any vital information. Failure to clearly express the assignment fee to the buyer can often lead to legal penalties or complications.

Contractual Rights:  There are some contractual points to consider when handling an assignment fee in real estate. The original purchase agreement must expressly allow for the assignment of the contract without the need for repeat consent of the seller, or the investor must obtain written permission from the seller to assign the contract.

Licensing Laws:  Some regions may require an individual enacting a wholesale deal or receiving an assignment fee to have a professional real estate license, as the transaction could be considered as engaging in real estate brokerage without a license. This is worth considering if you want to pursue a career as a wholesaler or investor in general. 

State and Local Laws:  Both assignment fee legality and the ability to assign a contract can vary greatly between the different states and localities of the US. It’s crucial to understand the specific regulations of the area where you’re working and or where the property is located. It’s always important to tailor your approach to real estate for the area that you operate within. 

Ethical Considerations:

Fairness to All Parties:  Ethically, the fee should always reflect the value that’s actually been added by the assignor in finding the deal and should not be exploitative. If you’re working as a real estate wholesaler or receiving an assignment fee in any other way, make sure that you’re offering real value without overstating your contribution to the transaction. 

Transparency:  Assignors must be totally transparent about the property’s condition, the original contract terms, and the assignment fee’s size at every stage of the transaction. Remember, you’re not just trying to avoid legal implications with your honesty; you’re looking to build positive professional relationships built on trust. 

Conflict of Interest:  Ethically, an assignor should avoid any conflicts of interest in all transactions and should not misrepresent the potential value or investment benefits to the assignee. For example, if the assignor knows that an area is losing steam in the market, they should make that clear to their assignee.

Examples of Potential Legal and Ethical Issues

Non-Disclosure:  Failing to disclose one’s assignment fee openly and clearly to the end buyer or seller can lead to lawsuits, as it may be considered a fraudulent practice. It’s absolutely essential that a wholesaler makes it clear what they stand to gain from a deal so everyone understands the transaction from top to bottom. 

Predatory Practices:  Charging exorbitant assignment fees, especially in distressed markets or from vulnerable sellers, which are often hubs for real estate wholesaling, can be seen as unethical and might lead to legal challenges. This is why offering real value and making your fees reasonable is crucial.

Misrepresentation:  An assignor could face serious legal action if they misrepresent the terms of the original contract or the property’s condition for the purpose of securing a higher fee. It goes hand in hand with all of the other aspects of transparency—assignors must be clear and honest at every stage to avoid legal and ethical complications. 

Violation of Licensing Laws:  If an assignor acts as a de facto real estate broker by frequently assigning contracts for fees without a professional license, they might face legal penalties, including fines and injunctions. These laws vary from state to state, meaning it’s best to have a license in place, ensuring you can work in as many areas as possible. 

Breach of Contract:  If the original contract does not allow for the assignment of the property and the assignor proceeds without consent, they are highly likely to be sued for breach of contract. It should go without saying, but every real estate transaction needs to be enacted with the utmost professionalism, ensuring every party is fully aware of its nature. 

It’s essential for every party involved in the assignment of real estate contracts to be aware of the legal and ethical implications. The complex nature of these transactions often warrants the involvement of a dedicated legal professional to navigate the potential minefield of legal regulations and ethical considerations. Moreover, maintaining transparency and integrity throughout the process not only helps assignors avoid legal troubles but also builds a reputation that can lead to more successful deals in the future.

In this exploration of assignment fees in real estate, we’ve navigated their many complexities and nuances. From definition to application, assignment fees are a pivotal mechanism for investors, particularly in the realm of wholesaling.

There are many advantages and disadvantages associated with assignment fees. For sellers and investors, they can represent an expedient route to liquidity and profit. Conversely, for buyers, they can often introduce additional layers of cost and complexity.

The discussion of legal and ethical considerations illuminated the tightrope walked by those who engage in these transactions. The importance of adhering to disclosure norms, maintaining transparency, and aligning practices with the legal stipulations of the local and state jurisdictions cannot be overstated in this particular vein of real estate.

While the concept of assignment fees may appear straightforward, its application is often fraught with potential legal and ethical pitfalls. Those involved in real estate transactions must have a clear understanding of these fees and the corresponding regulations that govern their use.

By engaging in thorough research and due diligence and enlisting expert guidance, navigating the complex world of real estate can be achieved with confidence. The strategic use of assignment fees can indeed unlock opportunities and foster successful transactions, but only when managed with suitable care and consideration of all the variables at play.

For more insightful pieces about the real estate industry,  visit our blog today .

Copy short link

Family Debt Planning

Establishing Financial Confidence

Assignment Clause in a Real Estate Contract: What to Know

An assignment clause in a real estate contract allows an investor to sell a property without buying it. There is a lot to unpack in that simple sentence, so let us examine why a seller, an investor (or wholesaler), and a buyer may want to enter into such an agreement. 

• An assignment clause in real estate allows an intermediary to grant the privileges and responsibilities of a contract to another person. 
• People make money assigning contracts by brokering deals between motivated sellers and dependable investors.  

There is a lot of legwork that goes into finding appropriate properties. However, the transactions themselves usually happen very quickly.  

Click to Open Outline

How Does an Assignment of Contract Work? 

What does assignment mean in a contract? An assignment grants the benefits and responsibilities of a contract from one party to another. Investors use these contracts to ensure they get paid when they broker real estate deals. 1   

What is an Assignment Clause in a Real Estate Contract? 

The assignment clause in a real estate contract is the vehicle that allows wholesalers, or intermediaries, to broker deals in real estate. There are three important parties in the clause: 

• The assignor – The seller  
• The obligor – The investor or wholesaler 
• The assignee – The buyer 

This allows the obligor to be a legal party to the contract. It allows compensation for the investor (the obligor), who acts as the middleman. 

What if There is No Assignment Clause in a Real Estate Contract? 

Can you assign a contract without an assignment clause? Most of the time yes. In most states, if the contract does not specifically forbid it then a buyer may assign the contract to another buyer. However, be careful. If you do not include the clause in the sales contract, then you should draft a contract stipulating your assignment fees with the new buyer.  

Difference Between Assignment and Novation 

The difference between an assignment and a novation is subtle but important. With an assignment, the obligor transfers the benefits and obligations of the existing contract to a third party. No change is made to the contract. In the case of a novation, the investor substitutes one buyer for another.  

To novate a contract, the assignor (the seller) must agree to a change in the contract. That is not necessarily true in the case of assignment. The 0bligor may assign an assignee (the new buyer) and not make any changes to the contract.  

How do You Make Money Assigning Real Estate Contracts? 

This real estate investment strategy works when you broker a deal between a motivated seller and an investor. It is a niche market that requires you, as the broker, to find the right seller and match them with an appropriate buyer. But what kind of seller? And what kind of buyer? 2   

What Sellers You Should Approach with an Assignment Contract 

Not every seller is interested in this type of transaction. Finding the right seller of an appropriate property is crucial. You must find a motivated seller who thinks it is more important to sell quickly than get the most money.  

This is a proactive process. You must find them before they find another interested buyer or broker. Here are some ways brokers find these buyers: 

• Email marketing 
• Direct mail marketing 
• Putting out signs in a target neighborhood 

With this campaign, you look for the seller who tells you “I have to sell because . . .” as opposed to “I’m curious about what my house may be worth.” 

What Buyers You Should Approach with an Assignment Contract 

When you find a motivated buyer, who wants to sell an appropriate property it is important to already have an interested seller or sellers, you can call. If you do not have a dependable buyer ready to go you will lose the deal, because someone else will buy. What does a good buyer look like in this case? 

• Someone with experience buying investment properties. 
• Someone who can close quickly. 
• A professional who is consistent and decisive. 

The buyer must act quickly. This means they pay cash or have financing lined up ahead of time and can close quickly. Indecisive people will either not act quick enough or get cold feet and back out of the deal. In the latter case that could leave you in a precarious position. You either must buy the property yourself or forfeit your earnest money.  

The best thing to do is find an investor you trust before you find a motivated seller. Going to investing chat rooms is a good place to start if you do not know anyone personally.  

Final Thoughts on An Assignment Clause in a Real Estate Contract 

Assignment contracts may seem like an easy investment strategy on the surface, but it requires a lot of research. You must know real estate values in your area very well and be willing to do a lot of legwork finding undervalued properties with motivated sellers. That is not easy, and there is a lot of competition.  

On the other side of the transaction, you must cultivate a stable of reliable investors. This takes even longer because you must develop trust with them. You must trust them to complete the transaction, and they must trust you to find them good investments. One bad deal can sour a relationship. Also, not every investor is ready when you find a property, so you must gather a stable of investors so that one will be ready when you call with a hot deal.  

References 

• Assets America  
• Fortune Builders  

More on Real Estate Transaction

🤑 BatchLeads now includes FREE skip tracing! 🤑

Lead Gen and Marketing

API and ListBuilder

Find distressed properties with driving for dollars.

Search for leads based on your ideal customer.

Analyze properties and identify the best opportunities.

Access the industry’s most accurate property and owner data.

Engage directly with property owners.

Power your websites and applications.

Uncover on and off market investment opportunities.

Close deals faster with higher quality leads.

Perfect listings and cash buyers at your fingertips.

Identify motivated borrowers before they shop around.

Beat the competition by reaching decision makers first.

Wow your referral partners with industry-leading property data.

Fuel High-Performing Marketing Campaigns.

• Resources EDUCATION Batch TV Blog Courses Events & Webinars TOOLS FAQs Help Center Integrations Support Community Partner with Us Our Partners

• Get Started Log In Contact Sales

Assigning Deals Safely With a Wholesale Assignment Contract

• Blog , Wholesaling Real Estate
• Published on December 6, 2022

Home » Blog » Assigning Deals Safely With a Wholesale Assignment Contract

Once you sign a real estate contract with a motivated seller, it’s time to enjoy your big payday. But there’s one more thing you need to take care of before you can cash that assignment fee check you’ve been looking forward to: you need a wholesale assignment contract. 

How does it differ from a wholesale real estate contract and what should it include? Here are all the details you need to know about legally transferring your deals to cash buyers.

What is a wholesale assignment contract?

There are two different kinds of contracts you need to understand in wholesale real estate: purchase and sale agreements and wholesale assignment contracts.

A purchase and sale contract gives a wholesaler equitable interest in a property, meaning that the house is in the process of being sold and the wholesaler has a financial tie to the transaction. A wholesale assignment contract transfers that equitable interest to a cash buyer, giving them a right to close on the property in place of the wholesaler.

The difference between the two documents is that the assignment contract details the wholesaler’s terms and removes the wholesaler from the deal completely. After signing, it’s the cash buyer’s job to finish the transaction.

What should a wholesale assignment contract include?

An agreement between a wholesaler and a cash buyer is a relatively simple document, but you should include a few key elements to protect yourself and keep everyone involved in the transaction informed.

One key thing to include is a copy of the original wholesale real estate contract. This document will include all the sale agreements including the closing date, sale price, state of the property, and its legal description or address. 

You should also detail your terms and conditions. These include the deposit you expect on the assignment fee, the fee amount, how it should be paid, and if it will be held in escrow. The document should also include a clause that states that you are absolving yourself of any responsibility or equitable interest in the property. This can protect you if something happens to the deal between the seller and the cash buyer.

One final piece your wholesale assignment contracts should include is a clause that prohibits the buyer from assigning the contract to someone else. Contract law states that nearly all contracts are assignable by nature unless they specifically state otherwise. By including a clause that prohibits your buyer from reassigning the contract, you can prevent them from wholesaling your deal and assigning it to someone else for more profit, ensuring that you collect your assignment fee.

Building a list of buyers you can trust

Because real estate investing involves large monetary transactions, it’s important to have buyers you can trust before you assign a contract to them. While contracts are designed to protect you, the truth is they can’t stop buyers from breaching the agreement. They can only give you recourse after the fact. 

However, that will still require you to hire a lawyer and possibly even go to court to reclaim damages. Even if you can reclaim the money, you’ll be spending a large amount of it on legal fees. You’ll also be losing a lot of time you could use to find other deals.

To protect yourself from this hassle, we recommend building relationships with cash buyers as opposed to sending deals to investors you don’t know. This way you know who you’re working with before you sign a contract with them.

Finding cash buyers

There are several ways to meet and network with cash buyers . One great option is to get involved in local real estate groups and meet-ups. Not only will this give you the chance to meet buyers in person, but you’ll also open up opportunities for joint ventures and partnerships with other wholesalers.

You can also attend local property auctions. When homes are condemned or enter foreclosure, the county may auction them off on the courthouse steps, giving buyers a great opportunity to snag deals at low prices. 

These auctions will give you a great opportunity to see which investors are actively buying. With the real estate market cooling down, not every investor can still afford to buy. You should limit your working relationships to those who can so you don’t get stuck with deals you can’t assign.

Finally, you can also use real estate lead generation software to generate a lot of potential buyer leads at once. All you have to do is search for people who have made cash real estate purchases in the last two years. Then you can call through the lists to find real estate investors who are interested in buying a property like the one you have available.

All of these are great ways to find cash buyers, but we recommend being careful and doing your due diligence before sending a contract to anyone, especially if it’s your first time working with them. Ask other investors in your market if they know them and learn as much as you can about their reputation. A contract can protect you, but it may involve a lot of headaches that can be avoided by learning about who you’re working with before sending them a contract.

Understanding how to assign a contract to a cash buyer is an essential part of wholesaling real estate. The process is fairly simple, but it does involve a few key parts that you don’t want to overlook. 

The good news is that the internet is full of reliable wholesale assignment contract templates that you can use for free. We just recommend consulting a real estate attorney before you sign or assign one. Real estate laws vary by state, and you don’t want to find out that you’re working with a bad contract after you’ve already signed it. 

With all that in mind, the most important thing to understand about real estate contracts is that they can’t stop someone from breaking an agreement. Your first responsibility is to find trustworthy people to do business with so that your contracts can act as a formality instead of helping you reclaim damages in court.

Subscribe to our Newsletter

Tags for This Post

• Finding Cash Buyers , purchase and sale agreements , Wholesale Contracts

Join more than 10,000 real estate pros

Suggested Articles

• Blog , Investor Tips

BatchLeads Vs. Propstream: How To Choose The Best Real Estate Leads Software

• Blog , Real Estate Investing

How to Find Expired Listings

How to Contact Homeowners By Skip Tracing Real Estate

Get the latest from BatchLeads

Why BatchLeads

Role solutions.

Quick Links – Texas | California | Florida | Georgia | New York

Terms of Service | Privacy Policy | Personal Information

©BatchLeads 2024. All rights reserved.

BatchDriven is becoming part of BatchLeads! Make the switch today and bring your stored routes, message history, lists, and existing account credits with you. Click pricing to view our new plans.

For subscribing to BatchService Newsletter!

How to Control the Contract with And Or Assigns in Real Estate Deals

There are three dynamic words that you can use in your real estate transactions that will give you many more options than you ever thought possible. These three words are “ and or assigns ”. Another way to write it out more fully is “ its successors and or assigns ” but either way gives you all the control over the contract.

It is very amazing what these few little words can do for you when you are investing in real estate.

Here is what you can write next to your name in a contract to allow you to control the contract:

• John Doe and its successors and or assigns
• John Doe and its successors and/or assigns
• John Doe and or assigns
• John Doe and/or assigns

When you enter into a contract to buy real estate as a buyer, the contract usually has your name as the buyer and the seller’s name as the seller.

This is to be able to assignment of contract in real estate transactions.

This contract enters you and the seller into an agreement that you will be buying the property from the seller at a given price. Your only option is for you to go through with the purchase of the property yourself.

Listen to the Its Successors And Or Assigns Podcast here:

Now if you add ” its successors and or assigns ” after your name as the buyer, your options have just increased greatly in what you can do with the contract and property.

A contract with “ its successors and or assigns ” after your name as the buyer.With the phrase “ and or assigns ” added to your name as the buyer, you are basically saying:

The buyer reserves the right to lease, rent, repair, assign to someone else, or sell the property for a profit.

Specific language to use in the assignment of contract in real estate for or against “ its successors and or assigns ”.

If you wanted to be much more specific, you could add this as a clause to your contract:

“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.”

Watch the And/Or Assigns Lesson Here: 

If you are the seller and you do NOT want the buyer to be able to assign the contract by using “its successors and or assigns “, you can put this in the language of the contract:

“The Buyer agrees not to assign this contract in whole or in part to any third party.”

Current Deal With Its Successors And Or Assigns

The most recent property that I entered into a contract for purchase came with a contract just like this.

I am currently in the escrow process for this property in I will hopefully close very soon.

Because I am a buy-and-hold investor , I usually am in the receiving end of an assignment contract. The person I am receiving the assignment from will make $2000 from the assignment of the contract to me.

So basically I am paying the whole seller who found the property $2000 for finding the property and assignment of contract in real estate to me.

Some people may be concerned that they are paying $2000 to someone for assigning a contract but I don’t personally care. Obviously I like to spend as little money as possible on a property but without this wholesaler assigning the contract to me, I would not have found this terrific property.

This one property will make me $500 in passive income each month after expenses so I am totally fine with paying someone $2000 for the contract of the property.

Now that I explained how I have used it in the past, let me give you the pros and cons for using “ and or assigns ” in your contracts.

Pro's and Con's for Its Successors And or assigns

Gives you control over the contract and property.

When you enter into a assignment of contract in real estate without “ its successors and or assigns ” your only option is for you to purchase the property as the contract states.

You cannot get a third party involved in the deal with you. You also are not able to assign the contract to a third-party for a fee as in the case stated above.

By adding “ its successors and or assigns ” after your name as the buyer, you now have the rights to lease , rent , repair, assign, or sell the property for profit.

You can even go through with the purchase as originally intended with you is the buyer and not do any assigning.

You Get Paid An Assignment Fee as the Broker of the Deal

If you are the assigning party, you add a fee into the transaction so you get paid as the dealmaker between the seller and buyer.

There are no added expenses on your end because you are getting paid a fee that is specified in the contract, and agreed to by the seller and buyer.

If you find a property that a sellers willing to sell the property for $100,000, you turn around and market it for sale to an investor for $110,000, the difference is yours as an assignment fee.

Depending on what the buyer and seller agree with you is an adequate assignment the, you could make a lot of money.

Informs the Seller of Your Intent to Purchase the Property Yourself

The contract itself is stating to the seller your intent to purchase the property. Just because you put “ its successors and or assigns ” does not mean that you will not follow through with the purchase of the property yourself.

It does not lock you into assigning to a third party.

You can still go through with the purchase yourself.

Informs the Seller of Your Intent to Possibly Assign the Contract to Somebody Else for a Profit

Honesty and transparency is always the best policy in all business dealings.

If it is even a possibility that you may assign a contract to someone else, it would be wise to let the seller know ahead of time by putting in the phrase “ its successors and or assigns ” into your contract.

The last thing you want is for you to go to the closing of escrow on a property you are purchasing and have problems.

Not informing the seller ahead of time your intent to assign the contract to someone else may cause major problems with the seller if feel they were misled or deceived.

This will greatly hinder the assignment of contract in real estate.

You Can Make Money as the Broker of the Deal with Another Buyer

As in the case stated above with my most recent property, the person assigning me the contract is making $2000 on this one transaction.

It is not uncommon for wholesalers to make anywhere from $1500-$5000 on an assignment of a contract to an investor.

I personally don’t mind paying an assignment fee as long as the numbers work out well for the property. I make sure that the numbers work in my favor even with the assignment fee.

So if I see a property I want to buy as a rental, I run all my numbers first to make sure it will be a good investment and subtract the assignment fee.

This is basically making the seller pay for the assignment fee and not myself.

Even if it were myself paying the assignment fee, as long as the numbers add up in my favor, I will still pay the assignment fee without hesitation.

If you think about it, you would already pay a realtor 3% for representing you as your agent.

Either way you are still paying for someone to help facilitate the transaction unless you find the seller yourself.

You Will not be in the Chain of Title

When any change of ownership is done on a property, the recorder’s office of your local county records the name of who held ownership.

If you buy a property and then sell it five minutes later, there will be two recorded documents for the assignment of contract in real estate.

The first document will be your purchase from the seller and the second would be your sale to a buyer.

Here is what it would look like:

Transaction 1 : Seller John Doe  to  Buyer Joe Smith Transaction   2 : Seller Joe Smith  to  Buyer Matt Jones

The chain of title now holds Joe Smith as a previous owner.  This is not necessarily a bad thing; it is just something else to take note of.

Less Money for Buyer and Seller Since No Realtors are Involved

Depending on how much the assignment fee is and the purchase price of the property, an investor can save lots of money going through a wholesaler within assignment fee.

If you purchase a property for $300,000 and use a realtor, more than likely you will be charged 3% for the realtor representing you as the buyer’s agent.

There also be another 3% the seller has to pay to his realtor as the seller’s agent. That would be a total of 6% being paid as realtor fees.

$300,000 X 6% = $18,000

If you used a realtor for this deal, $18,000 would go to them. A wholesaler’s transaction fee of $5000 does not sound all that bad. You are actually saving lots of money by paying a transaction fee instead of using realtor.

One Set of Closing Costs Instead of Two

If you bought whenever you purchase a property, there are a lot of expenses that are incurred which are called closing costs.

When you look at the HUD statement of a property are purchasing, you will see many expenses that the title company charges as well as the county government charges for the transaction.

Here are some charges you will most likely see in your transaction:

• Settlement or closing fee
• Abstract or title search
• Title examination
• Title insurance binder
• Outside closing fee
• Title insurance
• Attorney’s fees
• Lender’s coverage
• Owner’s coverage
• Shipping or overnight fee
• Wire transfer fee
• Recording fees
• Government taxes

By assigning a contract there is only one transaction and all of these fees are only paid one time. If you go through with two transactions you are basically doubling the costs involved because you are having two closings back to back.

Down sides to Its Successors And/Or Assigns

Most people don’t know what its successors and or assigns means and can get scared off.

Most people you encounter are not real estate investors. They do not understand what you do about real estate. They do not know real estate is really all about the numbers .

If the property value, expenses, price, rents, etc. all line up to be a good investment property, it is a good investment for you to buy.

Home owners are not investors. They do not understand that a house is just an investment to you. They get emotionally tied to “Their” house and become “emotionally invested” in the house.

Since you are an objective third party who is looking to profit off “their” house, they may get upset and view you as an enemy who is taking advantage of them.

The best way around this is to address their “Need” for selling the property. Maybe they “need” to sell the property because they are moving to another state and need the money to purchase a new home.

Focus your conversation on how “ its successors and or assigns ” will allow you to help them accomplish their move in the assignment of contract in real estate.

You are going to be working for them finding the best person to help them out of their situation. Being there for them and you are going to take care of their problem.

You May Have to Educate the Buyer and Seller what assignment of contract in real estate Is and Is Not

Since most home owners are not investors, you may have to educated the seller on what “its successors and/or assigns ” means for you as the buyer AND them as the seller.

This may take some time to “convince” the seller that by using “ its successors and or assigns ” in your contract will allow you to accomplish the goal of helping them to sell their house.

Explain that “its successors and or assigns ” will:

• Take care of their need to sell the property
• Save them money
• Allow you to go to work for them
• Give you the ability to structure a deal that will best suit their need of selling the property
• Already have an agreed upon price that is going to the seller
• Not change the contract you already have signed with them

Explain that “its successors and or assigns ” will not:

• Take money from them out of the deal
• Make them “lose” their property
• Is not going to take advantage of them
• Not destroy the property that they love
• Have hidden costs, fees, etc. because everything is disclosed in the beginning

Bank Owned Properties Usually Will Not Accept an Offer with “ And/Or Assigns ”

Banks seem to always put in their contracts the “not assignable” verbiage to prevent assignments of the contracts. I have yet to purchase a house from a bank that allows a buyer to assign the contract, whole or in part, to a third party.

If Your Buyer Who you are Signing the Property You Backs Out, It Looks Bad on YOU As An Investor

Usually investors know other investors who are interested in buying real estate. If you are a wholesaler, you should have a “Buyers” list. This is a list of investors that are ready to purchase property that fit their criteria.

I am on many wholesalers “Buyers” list all across the country. Because I purchase so many properties, I look for deals everywhere I can.

A problem may arise if you as the wholesaler sets up an assignment deal with a home owner and an investor and the deal has problems. It is your name on the line as the broker of the transaction between the two parties.

For example: A seller needs the home sold by July 15 th so they can move onto purchase their next home.

The closing date you set up with the seller and the investor is the 15 th of July and everything is moving along just fine.

On the 15 th , the investor has trouble wiring the money to the escrow company and the deal is delayed.

The seller is now having problems with purchasing their new house and are not able to proceed because the sale does not go through on their old one.

This looks bad on you as the broker of the deal.

Also, if the problem is with the seller, the investor that you are working with may not buy through you again because you caused problems with this deal and they don’t want to use you anymore.

Real estate is a people business. If your name in the business is a bad one, you will not be able to last long because people will not trust you.

You are Still on the Hook for the Contract

In the example above, if your investor does not follow through with the purchase, you are now liable for the purchase of the property.

The contract with you and your seller are still in force and they can come after you for breach of contract.

At least, your earnest money you put down for the property will go to the seller.

The Buyer and Seller May Question How Much Money You Are Making in the Deal

This will most likely come up. Not usually from the investor because as long as the numbers line up it will still be a good deal to move forward with.

The seller on the other hand may be upset that you are making money that “Should” be theirs. In reality, this is not the case. You are basically acting as the agent brokering a sale.

Much like a realtor, you are helping them find a buyer for their property.

The best way to show them they are benefiting from this transaction, show them how much it would cost if they were to go through a realtor.

Show them realtors will take 6% from the deal and you are only taking a small portion of that in the assignment of contract in real estate.

**What Happens When You Get Stuck With A Contract?**

Also, if you do use the “ its successors and/or assigns ” in your assignment of contract in real estate, you are not stuck with a contract. There are many options for a good property with a good contract that you can assign.

I get asked this question all the time. “What can you do if you can't assign a contract”?

This does sound scary, that you are forced to buy a house…

But this is totally not the case. I wrote an extensive article on what to do with the contract you already have. You can check it out here :

How have you seen “ its successors and/or assigns ” in your real estate dealings?

Leave me a comment below to share how you have used its successors and/or assigns to make money in real estate.

Get the FREE Real Estate Investing Guide

Free investor training, related articles, beware of rental arbitrage – do this instead and make money 6 ways, the book on rental property investing: essential guide for financial freedom, top 5 real estate crm platforms for agent efficiency in 2023, syndication investing with a passive real estate investor, what you need to know about easement by appurtenant and all the other easement types, how to invest in real estate [the definitive step-by-step guide].

• Financial Freedom
• Making Money
• Online Business
• Passive Income
• Personal Growth
• Real Estate

Get What You Need To Successfully Invest in Real Estate

Get all of the mpi courses plus coaching, 6 masterclass courses.

Premium online courses for any level of investor: beginner-advanced. Completely go at your own pace and can be taken through “Self-Study” or through “Membership”.

Group Coaching

Fast-track your investing success with access all past students’ work. Get access to the list of places to invest, business contacts, lenders, and resources other students have already found.

Investor Community

Work with MPI Coaches and Students inside the MPI Student Community.

Student Success Program

Pair up with another like-minded student for accountability, and crush your investing goals together.

Real Estate Wealth Builders

Get the coaching, education, community, and resources you need to become a successful real estate investor.

Home buyers and sellers to be spared standard broker commissions under $418 million settlement

The National Association of Realtors has agreed to a landmark settlement that would eliminate real estate brokers' long-standing commissions, commonly of up to 6% of the purchase price.

Instead, home buyers and sellers would be able to negotiate fees with their agents upfront. If the $418 million legal agreement is approved by a federal court, consumer advocates predict the ranks of real estate agents will thin, further driving down commission prices.

"For years, anti-competitive rules in the real estate industry have financially harmed millions," said Benjamin Brown, managing partner at the Cohen Milstein law firm and one of the settlement's negotiators. "This settlement bring sweeping reforms that will help countless American families."

The NAR acknowledged the pending settlement in a statement Friday and denied any wrongdoing.

"NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers," said Nykia Wright, interim CEO of NAR, whose previous chief stepped down late last year amid fallout from a federal lawsuit.

"It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible. This settlement achieves both of those goals," Wright said in the statement.

Currently, a home seller is essentially locked into paying a brokerage fee for listing their property on a multiple listing service, or MLS — usually 5% or 6% depending on their geographic area. Upon selling, half of the fee goes to a listing agent representing the seller, while the buyer's agent gets the other half.

The practice — which has become standard in the real estate industry in recent decades — led to accusations that some buyers' agents were steering prospects toward more expensive homes. In October, a federal jury found the NAR and some major brokerages liable for colluding to inflate commission fees, ordering the trade group to pay a historic $1.78 billion in damages .

"It's a bribe," Doug Miller, an attorney and longtime consumer advocate in the real estate industry, said of the commission-splitting arrangements. "You're paying someone to negotiate against you. There's no good reason for sellers to pay buyer-brokers."

If the settlement is approved, brokerage commissions would be stripped from MLS sites and opened up to negotiation with sellers, among a series of other changes. Homebuyers, too, would be able to negotiate fees more easily if they choose to sign up with a broker — though experts say the new arrangement may incentivize more buyers to forgo brokers entirely.

The new brokerage-fee changes would begin to take effect within months of the settlement's approval. A preliminary hearing to approve the deal is slated to take place in the coming weeks.

CORRECTION (March 15, 2024, 2:27 p.m. ET): A previous version of this article misstated when a federal jury found the NAR and some major brokerages liable for colluding to inflate commission fees. It was in October, not November.

Rob Wile is a breaking business news reporter for NBC News Digital.