Assignment of Contract - Posted by S.Howard

Real Estate Investing
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Posted by Kristine-CA on December 03, 2002 at 15:52:25:

The topic of North and South, as you might imagine, is hot among native Californians. And I’m not a native. To me, San Francisco is hardly Northern CA, but I wouldn’t mention it to anyone from anywhere north of San Luis Obispo–they think of themselves as Northerners all the way. I would think anyone who has been to Humboldt county would show some reverence for the people and the place that in my mind define Northern California and let them have the title exclusively.

And then, there is the whole issue of coastal CA versus central (on the other side of the ridge) CA, different as night and day regardless of north and south.

But when it comes to title, it’s each investor for him or herself. It’s the wild west out here and who care’s what’s customary anyway?

Sincerely, Kristine

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Assignment of Contract - Posted by S.Howard

Posted by S.Howard on December 01, 2002 at 08:44:00:

Hi, I signed a contract to purchase a single family home in NJ and I will be assigning the contract to another investor without actually closing myself.

Should I have him sign an agreement saying that he will pay me a fee if he buys the house before I show him the house, we’ve already agreed on a finder’s fee; or should I just show him the house and then assign the contract to him if he wants to buy.

Thanks,

S.Howard

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Re: Assignment of Contract - Posted by JohnBoy

Posted by JohnBoy on December 01, 2002 at 09:06:28:

Show the house. If he wants it then assign the contract and collect ALL your money up front at the time of assigning the contract. DO NOT wait until he closes on the house to get paid…UNLESS you get ALL the money up front as a NON-REFUNDABLE DEPOSIT. That way you get paid no matter what! If he does not agree to that…NEXT!!! Find another buyer that is serious!

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Re: Assignment of Contract - WOW! - Posted by ChrisC

Posted by ChrisC on December 05, 2002 at 20:30:53:

Dear JB -

I am in Chicagoland. Every Rehab/Investor I’ve spoken to over the phone has told me "No, I’ll only cut checks at closing, to protect me in case the deal falls apart, why should I risk paying for nothing?
I’ve always accepted that logic - however you probably know some of the underlying reasons - can you explain a little further?

Thanks,

ChrisC

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Good to read you again.(nt) - Posted by Glen SoCa

Posted by Glen SoCa on December 01, 2002 at 22:22:28:

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good to see you again… - Posted by tang-0-rang

Posted by tang-0-rang on December 01, 2002 at 16:22:30:

JohnBoy,
great to hear from you.
Todd Williamson…(CO)

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Re: Assignment of Contract - Posted by Jim Kennedy - Houston, TX

Posted by Jim Kennedy - Houston, TX on December 01, 2002 at 13:20:52:

Hi JohnBoy,

Just curious. If you were the BUYER of the assignment rather than the SELLER, would you still pay the assignment fee prior to closing? And if so, what would you do if the property owner were unable to convey clear title?

Just curious.

BTW, haven’t seen you posting much lately. I hope that’s an indication that you’ve been too busy doing deals.

Best of Success!!

Jim Kennedy,
Houston, TX

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I second JohnBoy on this one! - Posted by Kristine-CA

Posted by Kristine-CA on December 01, 2002 at 12:14:33:

JohnBoy: great to see you posting again.

I have learned the very hard way that it is absolutely crucial to collect the assignment fee at the time of assignment. Letting buyers pay assignments at closing (presumably because they want to use lender funds) is basically a way to let your buyers use escrow for due diligence at your expense. If they don’t close or don’t close within the time frame of your contract and/or option, you have nothing for your efforts. And most likely an expired contract and dead deal with the seller.

No apology from the buyer will make up for time they used on YOUR deal. If they are serious, get them to pay the assignment fee or non-refundable deposit that pays you for your efforts.

I wish I could say that it only took once for me, but the truth is I let this happen six times this year, twice with the same buyer! Never, ever again.

Sincerely, Kristine

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Re: Assignment of Contract - Posted by Kristine-CA

Posted by Kristine-CA on December 01, 2002 at 16:59:06:

Jim: I’m not JohnBoy, but I’ve had buyers with the same concerns as the ones you posted here. My wholesale properties are already in escrow and a prelim title report is available when I start to market them. So, nobody has taken over a contract for a property unless they are satisfied that clear title is available from their reading of the escrow docs and prelim title report.

Good question, I think, because not everyone wholesales this way. I use escrow on virtually everything because of the title insurance issues here in CA. One area I work is a nightmare of title clouds and quit claims and wild deeds. Every call from a knowledgeable buyer will have the question about clear title within five minutes.

I’m curious about JohnBoy’s comments as well.

Sincerely, Kristine

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Re: I second JohnBoy on this one! - Posted by matt

Posted by matt on December 02, 2002 at 21:23:46:

I’m not sure I understand what you are saying so let me give you and example:

I have an option on a house in move in condition for 345,000 and I find a buyer willing to pay 360,000. The difference is my profit which is 15,000. Are you saying that I should have my buyer sign the assignment agreement on the spot and also pay me $15,000 right then and there? I can’t imagine someone doing that. I can see getting 1,000 as a non-refundable deposit, but I don’t think someone in there right mind is going to come up with $15,000 cash on the spot. Why not do a double close instead of the assignment? Just sign a purchase and sale agreement with the buyer and take his deposit. Then wait until closing, do a double close and get the balance then?

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Re: Assignment of Contract - Posted by DANO (OR)

Posted by DANO (OR) on December 01, 2002 at 22:21:46:

Kristine,

So when you setup the escrow and order the title insurance and get a title report, do you have the future buyer pay for it? The seller pay for it? or do you pay for it every time with the risk you can’t flip it and have to back out of the agreement?

This is something that has worried me about wholsaling, I and trying to wholesale properties to get reserve funds, I could really put a hold on my flipping properties if I had a couple of houses I couldn’t flip and I ended pay for a title report I didn’t need.

This is probably just newbie paralysis, can you explain the process?
Thankx- DANO :slight_smile:

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Re: Assignment of Contract - Posted by Jim Kennedy - Houston, TX

Posted by Jim Kennedy - Houston, TX on December 01, 2002 at 18:35:40:

Hi Kristine,

Thanks for the response. However, you’re still answering from the perspective of the assignor, not the assignee. If YOU were the assignee, would YOU be willing to pay the assignment fee prior to closing? And if so, what would you do if the property owner were unable or unwilling to convey clear title?

I’ll tell you my policy. If I’m the assignor, I try to get paid at the time we execute the assignment. If I’m the assignee, the ONLY way I’ll pay prior to closing is to put the assignment fee in escrow with instructions to release it to the assignor either 1) at closing OR 2) if I fail to close due to some problem on my end of the transaction. I NEVER give the money directly to the assignor

Best of Success!!

Jim Kennedy,
Houston, TX

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Re: Assignment of Contract - Posted by Brad (sd)

Posted by Brad (sd) on December 01, 2002 at 17:37:20:

Hello Kristine,
I’m curious about what you mean by “using escrow for everything”. Does this mean that you have a title search done ASAP after getting a contract signed, or maybe someting else?

On a side note, how much does a title company charge you to open escrow and begin guaranteeing clear title in your area? Never done a deal and curious to find out if it costs anything to start escrow or if all the fees come at closing.

If I’m unclear on something maybe you could straighten me out!?! :>

Have a great day Kristine!

-Brad Pennington

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Re: I second JohnBoy on this one! - Posted by Kristine-CA

Posted by Kristine-CA on December 03, 2002 at 10:54:04:

matt: In the price range you mentioned, an assignment probably wouldn’t be the way to go. I’ve never gotten more than 5K upfront on an assignment. However, if the property you mention is an actual deal, you will likely run into problems with a double close. In the price ranges you mentioned, you will need an owner-occupant buyer, who probably doesn’t have cash. Doing a double close will bring the seasoning issue to light asap if their lender is on the look out for such a thing.

I would get a much bigger deposit than $1K on such a deal. If your buyer uses up all your time on your option or purchase agreement and end ups not buying, you don’t have anything to market to someone else.

In the double close you will incur some costs, escrow fees and title insurance, etc. Also, if your contract stated that you would buy as-is, if your buyer or lender has any issues, the deal will fall through.

I’m curious, are you working a deal with these numbers, or was it an example? I would think that 15K in this price range is not enough room. Or at least I wouldn’t do it. But maybe where you are, there are plenty of ready to go buyers and this house is a deal.

Sincerely, Kristine

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Re: Assignment of Contract - Posted by Kristine-CA

Posted by Kristine-CA on December 01, 2002 at 22:47:21:

Dano: sorry I’m not a better example. I have paid for title reports for properties I have not purchased. However, this is usually not a problem since your contract says that you will not purchase unless there is a marketable title. Now, if you unable to find a buyer and cancel the escrow, the escrow companies may or may not charge you for anything. Properties fall out of escrow all day long. If the property were to go back into escrow, the seller and the escrow company are hoping that someone will buy so that someone eventually will deposit funds that will pay for the title and escrow. I have not been charged for cancelled escrows. But technically, I think they can charge me (or the seller).

Whomever is contractually obligated to pay the fees pays them, and you can write the contract anyway you want–and can get your seller or buyer to agree to. Typically, in CA, seller pays for title and 1/2 of escrow fee. Sometimes I agree to pay everything and net the seller a certain amount. If I were to assign that contract, the assignee would have to be willing to take my contract as I wrote it. When I sell using a double close, I can write the selling contract with whatever terms the buyer and I agree to. If I pay 1/2 of escrow upon buying and 1/2 of escrow upon selling, that’s approximately one escrow fee–it varies because escrow fees are based on a fee schedule that is still a mystery to me, but basically it is based on the selling price of the property. In CA, there are usually minimums for escrow, around $300.00 or so. I work with lots of properties under 25K and usually pay the minimum. Title companies are free to give you volume business discounts, etc. So pick one that treats your business with respect and hopes that you will be a repeat customer.

Regarding paralysis: I wish I could tell you that this business doesn’t cost money, but it hasn’t been my experience. I borrowed or did whatever I had to do to pay the expenses that came up in order to make deals happen.

For example, it costs $175 per week for a three line classified ad in the largest local paper. What am I going to do? Not market a property I have under under contract because I don’t have $175.00? If I need to deposit $100 for earnest money because the seller and the escrow officer insist on it, of course I’m going to find it.

My experience is that there are no easy answers regarding the risk factor. It’s a risk. Period.

Maybe knowing that, you can accept that idea and not let that be a reason not to make a deal happen.

Sincerely, Kristine

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Re: Assignment of Contract - Posted by Kristine-CA

Posted by Kristine-CA on December 01, 2002 at 20:04:43:

Jim Kennedy: Thank you for your reponse. This thread has been educational for me. It is a good point for me to consider this issue from the perspective of the assignee. And still meet my requirements.

Fair enough. If I were selling to an experienced investor such as yourself whose funding was in place, I would be willing to be paid out of escrow. My contract would require that the amount of the assignment be deposited into escrow at the time of assignment, and that the assigment fee would not be refundable should the buyer not perform.

I’ve been mostly double closing because I find most buyers bulking at the idea of an assignment, even on little 2-3K deals. I haven’t yet formed relationships with investors whom have bought more than one deal. I imagine with the right relationship, there are investors whom I would trust to pay the assignment out of close.

Funny thing about this discussion is that it is about investor to investor deals. Is it safe to assume that the majority of wholesaling/flipping is just these kinds of transactions? So if investor buyers don’t want to pay before closing, what’s a wholesaler to do? And, was this discussion in any of the wholesaling books I read? No, it was not.

Very interesting and clarifying. Thanks again.

Sincerely, Kristine

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Re: Assignment of Contract - Posted by Kristine-CA

Posted by Kristine-CA on December 01, 2002 at 17:57:07:

Brad: by using escrow for everything, I mean all my contracts go straight to escrow with whatever deposit was required in the contract. A good title/escrow company will do the title prelim asap because they will want to see if anything needs fixing before close.

All escrow and title fees are paid at closing.

Note: one doesn’t need an escrow company to buy property. But since I prefer to spend my time marketing and working with sellers, etc., I don’t want to be at the courthouse recording deeds and doing title research. Also, I have very little patience with bureaucracy and it sometimes shows. So I am doing the county a favor by staying out of their offices as much as possible.

Escrow services and title services and insurance are worth paying for. For me, this is even true for properties bought and sold under 20K.

Just one investor’s opinion. Sincerely, Kristine

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Re: I second JohnBoy on this one! - Posted by matt

Posted by matt on December 03, 2002 at 22:39:49:

Kristine

Thanks for answering my post. These numbers are real, somewhat. I’m actually looking to sell for around 380,000 or more. Houses are selling for more that that in the area. So a $30,000 profit isin’t so bad. I have two real estate attornies that are familiar with double closes, they said that it shouldn’t be a problem. But I will ask them about the title seasoning issue anyway.

From what I understand, I won’t need title insurance, I’m only taking possesion of the house for about 15 minutes or so. The title insurance will be needed by my buyer.

I’m going to ask for more than a $1,000 deposit. I just used that number as an example.

As far as buyers go, I just ran an ad in a weekly paper that came out a day ago and people are calling. Some of them won’t be able to afford the house. But that’s ok, because I’m building a buyers list with those calls.

I understand what your saying though. The fact is the deal could fall through at anytime. The seller has the right to sell the house on his own or with a realtor. So if I don’t find a buyer before they do, I’m out. But the way I figure it, is that this is my first deal. I’ve been studying and putting off getting started for a long time for a number of reasons. If the deal falls through, I’ll be very disappointed, but at least I took some action, spoke to a seller, got an option agreement signed, answered calls from buyers, and am making that buyers list. So all in all, at least I’m doing something. But wish me luck on this, I hope everything works out. If it does, I’ll be sure to post it on the site.

Thanks again for answering my post.

Regards,
Matt

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Re: Assignment of Contract - Posted by Jim Kennedy - Houston, TX

Posted by Jim Kennedy - Houston, TX on December 01, 2002 at 23:51:14:

Hi Kristine,

In your post you wrote, “Typically, in CA, seller pays for title and 1/2 of escrow fee”.

Did you mean to say “in Southern California”, or does the seller typically pay in Northern California also?

Best of Success!!

Jim Kennedy,
Houston, TX

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Re: Assignment of Contract - Posted by DANO (OR)

Posted by DANO (OR) on December 01, 2002 at 23:05:37:

Kristine,

Thank you,

Like I’ve said in some of my other emails, I have been studying hard and learning the market, the title question was one that had been going on in the back of my mind also.

Believe me, I know it takes money to make a business work. I also know I need to have a good plan setup to minimize my risk/loss.

I guess I have been waiting to get started by trying to devise a risk free plan - I guess this will never happen.

Risk doesn’t scare me off, it’s the fact that I am a perfectionist and I feel nauseated for not being able to have the “PERFECT” plan.

I just need to get out their and start getting deals done.

Thankx again, I love your posts. It’s good to here expiriances from people who wholesale on a regular basis, it helps me out alot, have a great evening - DANO:)