Real Estate Assignment Fee Explained
The assignment fee is the profit a wholesaler earns by assigning their purchase contract to an end buyer. It is the difference between your contract price with the seller and the price the end buyer pays. Understanding how to set, structure, and optimize your assignment fee is essential for building a profitable wholesale business.
How the assignment fee works
When you sign a purchase contract with a seller at $100,000 and assign that contract to a buyer at $115,000, your assignment fee is $15,000. The title company handles the math at closing: the buyer brings $115,000 (plus closing costs), the seller receives $100,000, and you receive $15,000.
The fee is specified in the assignment of contract agreement, which is a separate document from the original purchase contract. Both documents are delivered to the title company before closing.
Typical assignment fee ranges
Assignment fees vary significantly by market, deal size, and how much value you create for the end buyer. Here are national averages based on deal size:
| ARV Range | Typical Fee | Fee as % of ARV |
|---|---|---|
| $50,000-$100,000 | $3,000-$8,000 | 5-10% |
| $100,000-$200,000 | $5,000-$15,000 | 4-8% |
| $200,000-$350,000 | $10,000-$25,000 | 4-8% |
| $350,000-$500,000 | $15,000-$35,000 | 4-7% |
| $500,000+ | $20,000-$50,000+ | 3-6% |
In competitive wholesale markets (Houston, Atlanta, Phoenix, Dallas), average fees tend to be higher because deal volume is higher and buyers are more active. In smaller markets, fees may be lower but competition is also lower, meaning deals are easier to find.
How to set your assignment fee
Your fee is not arbitrary. It is the result of where your contract price falls relative to your buyer's maximum price. The process:
- Calculate the buyer's MAO using the 70% rule: ARV × 0.70 − repairs.
- Your maximum fee = Buyer's MAO − Your contract price.
- Your optimal fee is the highest amount that still allows the deal to sell quickly (within 48-72 hours).
Example: ARV $240,000 | Repairs $30,000 | Buyer MAO: $138,000
Your contract: $115,000 | Max possible fee: $23,000
Optimal fee: $15,000-$18,000 (leaves buyer room below MAO)
Leaving room below the buyer's MAO makes your deal more attractive and generates faster responses. Pricing at exactly the MAO means the deal is borderline for buyers, leading to longer marketing times and a higher risk of no buyer.
When to take a smaller fee
Not every deal warrants a $15,000+ fee. Take a smaller fee when:
- The deal is tight. If the numbers barely work at a $5,000 fee, take $5,000. A small fee on a closed deal beats no fee on an expired contract.
- Building relationships. Selling a deal at a slim margin to a new buyer builds a relationship that produces repeat business. Long-term, your best buyers will buy 10-20+ deals from you.
- Market conditions are slow. In buyer's markets, fees compress because buyers have more options. Adjust your expectations accordingly.
- Your first deals. Closing your first 3-5 deals builds confidence, track record, and buyer relationships. Maximizing fees can wait.
When to hold firm on a larger fee
Take a premium fee when:
- The deal is exceptional. A property at 55% of ARV with minor cosmetic repairs is a screaming deal. Buyers will pay a premium fee because their profit is still substantial.
- You have multiple interested buyers. If 3-5 buyers want the same deal, you can negotiate a higher fee. Multiple offers create natural price competition.
- The property is in a hot neighborhood. Premium locations command premium fees because the buyer's risk is lower and the resale time is shorter.
Fee structure: flat fee vs. percentage
Most wholesalers charge a flat dollar amount rather than a percentage. This is simpler to communicate and negotiate. However, some wholesalers use a percentage approach (typically 5-10% of ARV) to scale their fee with deal size.
The market dictates your fee more than any formula. If you have a $300,000 ARV property and your buyer is happy at your asking price, the fee is right regardless of whether it represents 5%, 8%, or 12% of the ARV.
Tax implications
Assignment fees are taxed as ordinary income, not capital gains, because you never held the property as a capital asset. Additionally, if you wholesale regularly (which you will), the IRS considers this active business income subject to self-employment tax (15.3% for Social Security and Medicare).
Many wholesalers elect S-Corp taxation for their LLC once income exceeds $40,000-$50,000/year. With an S-Corp, you pay yourself a "reasonable salary" (subject to employment taxes) and take the remaining profit as distributions (not subject to self-employment tax). This can save thousands in taxes annually. Consult a CPA who works with real estate investors for personalized advice. See our LLC setup guide.
Disclosing your fee
In a standard assignment, your fee appears on the closing statement and is visible to all parties. This transparency is not inherently problematic, but it can create issues if the fee is disproportionately large relative to the deal size.
If you want to keep your fee private, use a double close. You close on the property first, then immediately resell to your buyer in a separate transaction. Neither the seller nor the buyer sees the spread.
Regardless of method, always disclose to the seller that you are an investor who may assign the contract or resell the property. Transparency builds trust and keeps you on the right side of regulations.
Related articles
- Assignment of Contract: Full Guide
- Wholesale Real Estate: Ultimate Guide
- How to Double Close Deals
- Wholesale Contract Template Guide
- Real Estate LLC: Complete Setup Guide