Go ahead: Assign away

What exactly does it mean to assign a contract to another buyer?

“Quite simply, the buyer assigns the rights and obligations of a contract to another to perform and receive benefits of that contract,” says attorney Joe Boyd, managing partner with law firm Boyd, Lindsey & Sliger P.L. in Tallahassee. For example, if Buyer A has a contract on Seller A’s house, and at or before closing Buyer A finds that the property has already appreciated $10,000, then Buyer A might decide to assign the contract to Buyer B for $10,000, thus making a profit on the property before it even closes.

This typically works with new construction, when it can take up to a year before the house is built and the sale is closed. “From the time the contract is signed until closing, buyers are finding that they can swing properties higher,” Boyd says. There are other reasons for assigning a contract, he adds, such as assigning it to a trust or a limited liability company.

Here are some tips to smoother transactions:

• Deposit — Since the seller runs the risk of financing problems arising with the second buyer, Boyd suggests that buyers put down a large deposit.
• Properly filled-out contracts — If you have a seller who doesn’t want an assignable contract, the offer/contract must be filled out correctly in the first place, such as addressing any language about assignment options, advises Boyd.
• Know your limits — “If you’re a broker who is going to be engaged in a pattern of drawing up assignable contracts, it’s important that you speak to a securities attorney to verify that the sales won’t be considered ‘brokering of a security investment,’ Boyd says.
• The name game — “If the contract is actually assigned, make sure all closing materials are going to be in the name of the new buyer,” Boyd says.