You’ve seen the advertising; I’ll Buy Your House For Cash! But have you ever wondered how it really works and it’s best for you? Here’s a condensed version of how it works;
- Homeowner agrees to a price from one of these ‘investors’ and moves towards closing.
- In the meantime, ‘investor’ #1 is shopping the house to other investors.
- Investor #1 find Investor #2 to assign the contract to and for a higher price than originally agreed on.
- Investor #2 closes on the property and investor #1 takes home the difference between the two prices. One of the tools used to do this is an assignable contract.
An assignable contract in real estate refers to a contract in which the buyer has the ability to transfer or assign their rights and obligations to another party without the need to seek the seller’s consent. This type of contract is often used in real estate wholesaling or when an investor wants the flexibility to sell their interest in the property before the closing takes place.
Here’s how an assignable contract typically works:
- Contract Formation:
- The buyer and seller enter into a purchase agreement or contract for the sale of real estate.
- Assignment Clause:
- The contract includes an assignment clause that explicitly states whether or not the buyer can assign their rights under the contract.
- Assignment Process:
- If the contract allows for assignment, the buyer can find another party (an assignee) who is willing to take over the contract.
- The buyer and the assignee enter into a separate agreement called an assignment agreement.
- Notification to Seller:
- The buyer usually needs to notify the seller of their intention to assign the contract.
- Depending on the terms of the original contract, the seller may need to approve the assignment.
- At the closing, the assignee steps into the shoes of the original buyer and completes the purchase of the property.
It’s important to note that very few real estate contracts are automatically assignable. The ability to assign a contract depends on the language included in the contract itself. Some contracts may expressly prohibit assignment, while others may allow it under certain conditions.
Real estate investors often use assignable contracts as a strategy to secure a property under contract and then sell their interest in the contract to another investor before the closing. This allows them to profit from the deal without actually purchasing the property. However, the process should be conducted carefully and in compliance with local real estate laws and regulations. Additionally, parties involved should be aware of any potential limitations or restrictions on assignment outlined in the original contract. The other tool used is a simultaneous closing.
Simultaneous closings, also known as double closings, refer to a real estate transaction structure where two separate closings occur on the same day—one for the sale of the property from the original seller to an intermediate buyer (often an investor), and another for the sale from the intermediate buyer to the final end-buyer. This type of transaction is commonly used in real estate wholesaling or when an investor wants to sell a property without actually taking ownership of it.
Here’s how simultaneous closings typically work:
- Contract with the Seller:
- The investor (middle person) enters into a purchase agreement or contract with the original seller to buy the property.
- Contract with the End-Buyer:
- The investor finds an end-buyer who is willing to purchase the property at a higher price.
- The investor enters into a separate purchase agreement or contract with the end-buyer.
- Closings Scheduled on the Same Day:
- Two separate closings are scheduled to take place on the same day: one between the original seller and the investor, and the other between the investor and the end-buyer.
- Funding the First Closing:
- The investor typically uses funds from the end-buyer (or other funding sources) to complete the first closing, acquiring the property from the original seller.
- Proceed to the Second Closing:
- Immediately following the first closing, the investor proceeds to the second closing with the end-buyer.
- The investor sells the property to the end-buyer, often at a higher price, and makes a profit from the price difference.
Simultaneous closings provide flexibility to investors who want to wholesale properties without taking ownership or using their own funds. It allows them to secure a property under contract, find an end-buyer, and profit from the deal without holding the property for an extended period.
However, it’s essential to be aware of legal and regulatory requirements, as well as any contractual limitations or restrictions on assignments and simultaneous closings. Real estate laws and practices can vary, so investors should ensure compliance with local regulations and work with experienced professionals when engaging in these types of transactions. We feel that this is a practice that should be looked at closely by the legislature of each state as many of these transactions are using predatory practices on homeowners who may not be fully educated about the value of their property or the value of having someone working on their behalf.
At Rainbow Row Real Estate, we believe in having someone working as a fiduciary for each each party in a transaction. Here’s what we bring to the table;
Using a Realtor:
- Market Exposure:
- Realtors can list your property on the Multiple Listing Service (MLS) and other marketing platforms, exposing it to a larger pool of potential buyers.
- Market Value:
- Realtors can help you determine the market value of your property through a comparative market analysis (CMA) and assist in setting a competitive asking price.
- Negotiation Expertise:
- Realtors are experienced in negotiation and can advocate for your interests during the negotiation process with potential buyers.
- Legal and Procedural Assistance:
- Realtors can guide you through the legal and procedural aspects of selling a property, ensuring compliance with regulations and contracts.
- Professional Networking:
- Realtors have a network of professionals, including inspectors, appraisers, and title companies, which can streamline the selling process.
Choosing between using a Realtor or selling to an investor is a personal decision and you should research each one and what the end result looks like for you. Ultimately, it’s important to evaluate your specific situation, preferences, and the characteristics of your property before deciding whether to use a realtor or sell to an investor. Consulting with both, a licensed real estate professional and investors, to explore your options is a prudent approach but ensure that you are maximizing your investment (not someone else’s).