Assignment of Contract: Full Guide
Assignment of contract is the legal mechanism that makes wholesale real estate possible. When you assign a contract, you transfer your rights as the buyer under a purchase agreement to a third party (your end buyer). The end buyer steps into your position and closes the deal with the seller at your original contract price, and you receive an assignment fee for facilitating the transaction. This guide explains exactly how it works, when to use it, and when a double close is a better option.
How assignment works step by step
- Sign a purchase agreement with the seller that includes an assignment clause: "Buyer, or their assigns, may assign this contract to a third party."
- Find an end buyer willing to purchase the property at a price higher than your contract price. The difference is your assignment fee.
- Execute an assignment agreement between you (assignor) and the end buyer (assignee). This document specifies the assignment fee and transfers all buyer rights and obligations.
- Deliver both documents to the title company: the original purchase agreement and the assignment agreement.
- The end buyer closes with the seller. The title company collects the full amount from the buyer, pays the seller the original contract price, and pays you the assignment fee.
What the assignment agreement must include
The assignment agreement is a separate document from your original purchase contract. It must contain:
- Identification of the original contract: Property address, contract date, seller name, original purchase price
- Assignor information: Your name and entity
- Assignee information: End buyer's name and entity
- Assignment fee: The specific dollar amount you are receiving
- Deposit from assignee: Typically $2,000-$5,000, often non-refundable, deposited with the title company
- Closing date: Same as or earlier than the original contract's closing date
- Signatures: Both assignor and assignee
Who sees your assignment fee?
In a standard assignment, your fee appears on the settlement statement (HUD-1 or closing disclosure). Both the seller and the buyer can see the fee amount. For many deals, this is fine. The seller agreed to their price, and the buyer agreed to theirs.
However, if your fee is large relative to the purchase price (e.g., a $25,000 fee on a $100,000 property), visibility can create issues. The seller might feel they sold too cheaply. The buyer might feel the deal is overpriced. In these situations, a double close keeps your profit private.
Assignment vs. double close
| Factor | Assignment | Double Close |
|---|---|---|
| Closing costs | One set (buyer pays) | Two sets (you pay one, buyer pays one) |
| Fee visibility | Visible to all parties | Private |
| Capital needed | None (just earnest money) | Full purchase price (or transactional funding) |
| Complexity | Simple | Moderate |
| Speed | Single closing | Two closings (same day possible) |
| Best for | Most deals, smaller fees | Large fees, sensitive sellers |
Use assignment for most deals where the fee is reasonable ($5,000-$15,000 on a $100K+ property). Use double close when the fee exceeds 15-20% of the purchase price or when either party would be uncomfortable seeing the spread.
Legal requirements by state
Assignment of contract is legal in all 50 states as a fundamental principle of contract law. However, some states have added disclosure requirements or restrictions specifically for wholesale real estate transactions:
Illinois: Requires wholesalers to register and disclose their role. The assignment must include specific statutory language.
Oklahoma: Enacted regulations requiring disclosure when marketing a property under an assignable contract.
Most other states: No specific wholesale regulations beyond standard contract law. Assignment is a standard real estate practice used by developers, builders, and investors.
Always consult a real estate attorney in your state to confirm compliance. A one-time legal review of your contract and assignment templates is a small investment that protects every future deal. See our state licensing guide and wholesaling legal guide.
Common problems and solutions
Seller refuses assignment clause. Explain that assignment does not change their terms (price, closing date, as-is condition). If they still refuse, plan for a double close from the start.
Title company refuses to process assignment. Not all title companies work with investors. Find an investor-friendly title company before you need one. Ask other wholesalers and investors for referrals.
Buyer backs out after signing assignment. This is why you collect a non-refundable deposit ($2,000-$5,000) with the assignment agreement. The deposit compensates you for the risk and gives the buyer skin in the game.
Fee negotiation. Buyers may push back on your fee. Be prepared to justify it with your deal analysis (ARV, comps, repair estimate, projected profit for the buyer). If the numbers work for the buyer at your price, the fee is irrelevant. If they do not work, the issue is pricing, not the fee.
Tax implications
Assignment fees are taxed as ordinary income (not capital gains) because you never owned the property. They are also subject to self-employment tax (15.3%) if you wholesale regularly. Consult a tax professional to structure your business optimally. Many wholesalers operate through an S-Corp to reduce self-employment tax liability. See our assignment fee guide for more on fee structures and our LLC guide for entity structuring.
Related articles
- Wholesale Real Estate: Ultimate Guide
- Wholesale Contract Template Guide
- How to Double Close Deals
- Real Estate Assignment Fee Explained
- Wholesaling Legal Guide