Assignment of contract in real estate: how it works

What "assignment of contract" means

An assignment of contract is the move at the center of almost every wholesale deal. You sign a purchase agreement to buy a house at $165,000, then you sell your rights under that agreement to another buyer for a fee, and that buyer closes in your place. You never take title. You never own the house. You transfer a signed contract and get paid for the spot you hold in line.

The language keeps two roles straight. You are the assignor, the party handing off the contract; the buyer who steps in is the assignee, who takes your right to purchase at the $165,000 you locked and takes on your obligations to the seller. The legal footing is old and simple: under basic contract law, rights are assignable by default unless the contract itself bars it or the deal is personal in nature. That default is why wholesaling works at all, and why the addendum language in section four matters so much.

The fee is the spread

Your assignment fee is the gap between the price you locked with the seller and the price your end buyer pays. Contract the house at $165,000, assign it to a cash buyer at $178,000, and your fee is $13,000. The buyer wires that $13,000, you never touch the mortgage, and the seller gets the exact $165,000 they agreed to. Nothing about the spread is hidden; it is the difference between two numbers on two lines.

What is a normal fee? A Real Estate Bees survey of more than 1,000 wholesalers, a vendor-run poll rather than an academic study, put the national average near $13,000, with state averages from about $5,000 in Arizona to roughly $22,000 in North Carolina and Georgia. Treat those as rough guideposts, not promises. Your fee is capped by one thing: the spread your end buyer will tolerate and still hit their own return.

The spread comes from buying right. A cash buyer prices backward from the after-repair value using something like the 70% rule: on a house worth $320,000 fixed up, with $40,000 of work, the rule puts a buyer's ceiling near $184,000. Your end buyer pays $178,000, under that ceiling, so the $13,000 fee on your $165,000 contract still leaves the buyer their margin. Lock that same contract at $200,000 instead and there is no room for any fee, no matter how clean your paperwork. The purchase contract you sign is where the money is made, long before you go looking for an assignee. Getting a seller down to $165,000 takes a motivated owner, which is the part Farmrix helps with: it scores owners by how likely they are to sell, so your low offer lands with someone ready to take it.

How to make a contract assignable

Most standard purchase contracts are assignable unless they say otherwise, but do not rely on silence. Sign as your name "and/or assigns," for example "Jordan Reyes and/or assigns," and you have put your right to transfer on the face of the deal. That short phrase is the difference between arguing about intent later and pointing to a line the seller already signed.

The assignment itself is a separate one-page document. It names the original contract by date and address, states that you assign all rights and obligations to the assignee, sets the $13,000 fee, and gets signed by both of you. Earnest money is part of the handoff: if you put $2,000 down to lock the deal, the assignee typically reimburses that $2,000 so you are made whole on cash already at risk. Keep the seller informed rather than surprised. A seller who learns at the closing table that a stranger is buying is a seller who cancels, and a growing number of states, Texas and Oklahoma among them, now put rules around this kind of flip, covered in the state-rules section below.

When you cannot assign

Plenty of contracts shut the door on purpose. Bank-owned (REO) properties almost always carry an addendum barring assignment and requiring the buyer named on the contract to be the buyer who closes. Homes sold through HUD carry owner-occupant and anti-flipping terms. Many Realtor-association forms allow assignment only with the seller's written consent, which is not a ban but is a conversation you have to win. Read every addendum first. An REO addendum overrides your "and/or assigns" every time.

When assignment is blocked, you have three honest routes. Get the seller's written consent to assign anyway. Close the deal yourself and resell it, which is a double closing rather than an assignment. Or, where it applies, sell the membership interest of an LLC that holds the contract instead of assigning the contract itself. Each route costs money or time. What none of them should involve is signing "and/or assigns" on a bank addendum that plainly forbids it and hoping nobody reads page nine.

Assignment versus double closing

When you cannot assign, or when you would rather your buyer never see your fee, you double close: you actually buy the house and sell it minutes or days later in a second transaction. It solves the privacy problem and the anti-assignment problem at once. It also costs real money, because you pay a second set of closing costs, often 1% to 2% of the price, plus the fee for transactional funding that covers the few hours you own the property.

The rule that actually holds: assign when your fee is small enough that a buyer shrugs at it and the contract permits it, and double close when the spread is big enough that seeing it would spook your buyer or the paperwork forbids a straight assignment. A $6,000 fee on a settlement statement rarely blows up a deal. A $45,000 fee sitting in the open often does, and a second set of closing costs on a $200,000 house is cheaper than the buyer who walks away insulted.

Negotiating and protecting your fee

This is the part the template pages skip. Your fee is not a sticker price you defend; it is whatever survives after your buyer runs their own numbers. So set it against their math, not your hope. If the after-repair value supports a buyer paying $172,000 and you are into the contract at $160,000, there is $12,000 of room, and asking $20,000 just hands the buyer a reason to go around you to the seller. Price the fee where the buyer still wins and you still get paid.

Protect it with a non-refundable deposit, and size it deliberately. Say you put $2,000 of your own earnest money down. Collect a non-refundable assignment deposit from your buyer that is larger, say $3,000, credited toward the total fee at closing. Now if the buyer walks, you are not out of pocket, you are $1,000 ahead, and you still control the contract. The common and costly mistake is taking a $500 deposit against $2,000 of your own money at risk, which lets a flaky buyer cost you $1,500 by doing nothing.

Get paid the clean way. Put the fee on the settlement statement and let the title company disburse it at closing, which gives you a paper trail and a check that clears. Paying "outside of closing" as a side consulting fee happens, but it invites exactly the questions a wholesaler does not want asked. And beware the belief that writing "and/or assigns" on everything guarantees a payday. It does not. It cannot override an REO addendum, and, as the next section shows, it does not even get you off the hook if your buyer defaults.

You may still be on the hook

Here is the risk most guides never mention. An assignment moves your rights to the assignee, but it does not automatically erase your obligations to the seller. Under basic contract law, spelled out plainly by Cornell's Legal Information Institute, an assignor can remain liable if the assignee fails to perform, unless the parties sign a novation. A novation is a new agreement that replaces you entirely and releases you, and it requires the seller's consent, not just yours and the buyer's.

Play it out with the numbers above. You assign the $165,000 contract, take your $3,000 deposit, and move on. Your assignee cannot close and disappears three days before the deadline. If your assignment was a plain transfer, the seller can look back to you, the original buyer who signed, for the $2,000 earnest money or for breach, because you were never formally released. Get a novation instead, and the seller agrees in writing that the new buyer stands fully in your place. On a deal where your buyer is unproven, that one extra signature is worth more than the deposit. It is protection "and/or assigns" was never going to give you.

Where assignment gets regulated

Assigning a real estate contract is legal in all fifty states by default, and it stays legal as long as you sell your own contract rather than broker someone else's property without a license. The catch is that a growing number of states have added rules aimed at exactly this business, and whether wholesaling is legal where you work now depends on following them.

Texas is the template case for the disclosure approach. Under Texas Property Code Section 5.086, added by Senate Bill 2212 effective September 1, 2017, a person selling an option or assigning an interest in a contract to purchase must disclose to any potential buyer, before they enter the contract, that they are selling only an option or an interest and do not hold legal title. Oklahoma went further, toward licensing. Its Predatory Real Estate Wholesaler Prohibition Act, effective November 1, 2021, requires wholesalers to hold a real estate license and follow the state's license code. Two states, two different answers. That is the whole point: you have to check yours.

Taxes on the fee

An assignment fee is business income, and that changes the tax picture from what a long-term investor expects. A wholesaler's fee is typically treated as ordinary business income earned by a dealer, not a capital gain, so a $13,000 fee does not get the lower long-term rate and it can also carry self-employment tax on top of income tax. That combination surprises new wholesalers who assumed real estate meant capital-gains treatment. It usually does not for the flip of a contract.

Because the exact rate depends on your entity, your income and your state, this is the point to bring in a CPA rather than a rule of thumb from a forum. Set aside a meaningful share of every fee the day it clears, keep clean records of each deal, and let a tax professional tell you your real number. Guessing here is how a good year turns into a bad April.

Put your first assignment together

Work it in order. Get a house under contract below what a cash buyer can pay, sign the agreement as "and/or assigns," and read every addendum for language that blocks a flip. Line up your assignee, set the fee inside the spread their numbers support, and collect a non-refundable deposit larger than your own money at risk. Use a novation when the buyer is unproven, put the fee on the settlement statement, and confirm your state's disclosure or licensing rules before you sign.

The paperwork is the manageable part. The hard part is the first step: finding an owner willing to sell low enough that a $13,000 spread exists at all, which is a sourcing problem, not a contract problem. Farmrix scores every owner in a market on how likely they are to sell in the next 6 to 12 months, ranks them, and mails the top of that list, so the seller who gives you a real spread actually picks up. For wholesalers that pipeline is the whole business, and it starts at 500 ranked owners and 500 postcards for $1,195. Lock the right contract, and the assignment is the easy money at the end.