If you haven’t assigned your first real estate contract yet, that’s okay. But if you’re going to be in the investing game for the long-haul, you will want to know how to get the job done right. Although wholesalers are most likely to use an assignment contract, the principles discussed below are true of any contract. Typically, contract assignment comes up when you find a property and secure a price, often well under market value, then turn around and “assign” purchasing rights to another investor or end-buyer. Learn how to assign contracts correctly with the tips below.
Be Clear With Your Real Estate Contract Terms
Specificity is vital for effective legal documents. One of the most common misconceptions about any type of legal writing is that legalese and verbosity come with the territory. This couldn’t be further from the truth. In fact, with assignment contracts, the simpler you keep matters, the better.
Our good asset protection students may already be wondering if it is better to use your entity or your personal name in these contracts. Ideally, both parties should be using entities like LLCs to protect their investments. This also happens to make assignment easier.
A good model to start with is simply: “[Your Entity Here] assigns XYZ Property to John Q. Public.” But if you have not covered your backside with an entity yet, you can still make the assignment in your own name–but we highly recommend that you get hip to protecting your assets with an LLC structure for lawsuit prevention regardless. If you are the one obtaining financing or do not yet have an entity, you may need to proceed with your own name. But you can still CYA with a simple provision in the contract.
Such a provision should include the fact that you (the buyer/assignor) are a real estate investor assigning interest in the property to a clearly-named third party. Get that clearly-named third party to initial this provision when signing the contract to reduce odds of a misunderstanding, or worse, down the line.
When in Doubt, Get it in Writing
This advice goes for any type of legal agreement. Always get any promises, offers, or commitments in writing. Never, ever just take a potential buyer’s word that they will follow through on matters discussed in negotiations. Here are some of the essential components of an assignment contract:
- A clear reference to the property in question, usually by address.
- A clause specifying that you make no guarantees relating to the property or its condition and that the other party is entering the contract following their own investigation of the property.
- A clear acceptance clause.
- A clause detailing earnest money, namely how much of the total the assignor will be paying you upfront. This is the part that is the “teeth” of your contract, which will ensure you get paid as promised. If you used an LLC or other entity in the assignment of contract, ensure payments are made to the entity’s account rather than your personal account.
- Specifications about your assignment fee, specifically dates and types of payment accepted. Caution: do not word this or any piece of your contract as a “finder’s fee.”
- A provision about your being informed of the assignment. Notify the original seller as well.
If any of the above are confusing to you, get a lawyer’s assistance with drafting an appropriate contract.
Don’t Attempt Assignment Contracts Alone: Get Professional Help
Finally, be aware that contracts are not good DIY projects. If you lack legal training, this article may be helpful in allowing you to identify if you have the relevant pieces of your assignment together, but is no substitute for personalized legal advice. Get help from experts like the legal professionals at Royal Legal Solutions for anything you need to stand up in court. We are happy to assist with basic legal documents and other transactional real estate matters as well as asset protection. Remember, we are a full-service firm for real estate investors–and real estate investors ourselves–so we have been in your shoes and are happy to help you with whatever you may need for your real estate business.