How to Control the Contract with And Or Assigns in Real Estate Deals
There are three dynamic words that you can use in your real estate transactions that will give you many more options than you ever thought possible. These three words are “ and or assigns ”. Another way to write it out more fully is “its successors and or assigns” but either way gives you all the control over the contract.
It is very amazing what these few little words can do for you when you are investing in real estate.
Here is what you can write next to your name in a contract to allow you to control the contract:
- John Doe and its successors and or assigns
- John Doe and its successors and/or assigns
- John Doe and or assigns
- John Doe and/or assigns
When you enter into a contract to buy real estate as a buyer, the contract usually has your name as the buyer and the seller’s name as the seller.
This is to be able to assignment of contract in real estate transactions.
This contract enters you and the seller into an agreement that you will be buying the property from the seller at a given price. Your only option is for you to go through with the purchase of the property yourself.
Listen to the Its Successors And Or Assigns Podcast here:
Now if you add ” its successors and or assigns ” after your name as the buyer, your options have just increased greatly in what you can do with the contract and property.
A contract with “ its successors and or assigns ” after your name as the buyer.With the phrase “ and or assigns ” added to your name as the buyer, you are basically saying:
The buyer reserves the right to lease, rent, repair, assign to someone else, or sell the property for a profit.
Specific Language to Use in the Assignment of Contract in Real Estate For or Against
“ its successors and or assigns ”
If you wanted to be much more specific, you could add this as a clause to your contract:
“The Buyer reserves the right to assign this contract in whole or in part to any third party without further notice to the Seller; said assignment not to relieve the Buyer from his or her obligation to complete the terms and conditions of this contract should be assigning default.”
Watch the And/Or Assigns Lesson Here:
If you are the seller and you do NOT want the buyer to be able to assign the contract by using “its successors and or assigns “, you can put this in the language of the contract:
“The Buyer agrees not to assign this contract in whole or in part to any third party.”
Current Deal With Its Successors And Or Assigns
The most recent property that I entered into a contract for purchase came with a contract just like this.
I am currently in the escrow process for this property in I will hopefully close very soon.
Because I am a buy-and-hold investor, I usually am in the receiving end of an assignment contract. The person I am receiving the assignment from will make $2000 from the assignment of the contract to me.
So basically I am paying the whole seller who found the property $2000 for finding the property and assignment of contract in real estate to me.
Some people may be concerned that they are paying $2000 to someone for assigning a contract but I don’t personally care. Obviously I like to spend as little money as possible on a property but without this wholesaler assigning the contract to me, I would not have found this terrific property.
This one property will make me $500 in passive income each month after expenses so I am totally fine with paying someone $2000 for the contract of the property.
Now that I explained how I have used it in the past, let me give you the pros and cons for using “ and or assigns ” in your contracts.
Pro's and Con's for Its Successors And or assigns
Gives you control over the contract and property
When you enter into a assignment of contract in real estate without “ its successors and or assigns ” your only option is for you to purchase the property as the contract states.
You cannot get a third party involved in the deal with you. You also are not able to assign the contract to a third-party for a fee as in the case stated above.
You can even go through with the purchase as originally intended with you is the buyer and not do any assigning.
You Get Paid An Assignment Fee as the Broker of the Deal
If you are the assigning party, you add a fee into the transaction so you get paid as the dealmaker between the seller and buyer.
There are no added expenses on your end because you are getting paid a fee that is specified in the contract, and agreed to by the seller and buyer.
If you find a property that a sellers willing to sell the property for $100,000, you turn around and market it for sale to an investor for $110,000, the difference is yours as an assignment fee.
Depending on what the buyer and seller agree with you is an adequate assignment the, you could make a lot of money.
Informs the Seller of Your Intent to Purchase the Property Yourself
The contract itself is stating to the seller your intent to purchase the property. Just because you put “ its successors and or assigns ” does not mean that you will not follow through with the purchase of the property yourself.
It does not lock you into assigning to a third party.
You can still go through with the purchase yourself.
Informs the Seller of Your Intent to Possibly Assign the Contract to Somebody Else for a Profit
Honesty and transparency is always the best policy in all business dealings.
If it is even a possibility that you may assign a contract to someone else, it would be wise to let the seller know ahead of time by putting in the phrase “ its successors and or assigns ” into your contract.
The last thing you want is for you to go to the closing of escrow on a property you are purchasing and have problems.
Not informing the seller ahead of time your intent to assign the contract to someone else may cause major problems with the seller if feel they were misled or deceived.
This will greatly hinder the assignment of contract in real estate.
You Can Make Money as the Broker of the Deal with Another Buyer
As in the case stated above with my most recent property, the person assigning me the contract is making $2000 on this one transaction.
It is not uncommon for wholesalers to make anywhere from $1500-$5000 on an assignment of a contract to an investor.
So if I see a property I want to buy as a rental, I run all my numbers first to make sure it will be a good investment and subtract the assignment fee.
This is basically making the seller pay for the assignment fee and not myself.
Even if it were myself paying the assignment fee, as long as the numbers add up in my favor, I will still pay the assignment fee without hesitation.
If you think about it, you would already pay a realtor 3% for representing you as your agent.
Either way you are still paying for someone to help facilitate the transaction unless you find the seller yourself.
You Will not be in the Chain of Title
When any change of ownership is done on a property, the recorder’s office of your local county records the name of who held ownership.
If you buy a property and then sell it five minutes later, there will be two recorded documents for the assignment of contract in real estate.
The first document will be your purchase from the seller and the second would be your sale to a buyer.
Here is what it would look like:
Transaction 1: Seller John Doe to Buyer Joe Smith
Transaction 2: Seller Joe Smith to Buyer Matt Jones
The chain of title now holds Joe Smith as a previous owner. This is not necessarily a bad thing; it is just something else to take note of.
Less Money for Buyer and Seller Since No Realtors are Involved
Depending on how much the assignment fee is and the purchase price of the property, an investor can save lots of money going through a wholesaler within assignment fee.
If you purchase a property for $300,000 and use a realtor, more than likely you will be charged 3% for the realtor representing you as the buyer’s agent.
There also be another 3% the seller has to pay to his realtor as the seller’s agent. That would be a total of 6% being paid as realtor fees.
$300,000 X 6% = $18,000
If you used a realtor for this deal, $18,000 would go to them. A wholesaler’s transaction fee of $5000 does not sound all that bad. You are actually saving lots of money by paying a transaction fee instead of using realtor.
One Set of Closing Costs Instead of Two
If you bought whenever you purchase a property, there are a lot of expenses that are incurred which are called closing costs.
When you look at the HUD statement of a property are purchasing, you will see many expenses that the title company charges as well as the county government charges for the transaction.
Here are some charges you will most likely see in your transaction:
- Settlement or closing fee
- Abstract or title search
- Title examination
- Title insurance binder
- Lender CPL
- Outside closing fee
- Title insurance
- Attorney’s fees
- Lender’s coverage
- Owner’s coverage
- Shipping or overnight fee
- Wire transfer fee
- City fees
- Recording fees
- Government taxes
By assigning a contract there is only one transaction and all of these fees are only paid one time. If you go through with two transactions you are basically doubling the costs involved because you are having two closings back to back.
Down sides to Its Successors And/Or Assigns
Most People Don’t Know what Its Successors And Or Assigns Means and Can Get Scared Off
Most people you encounter are not real estate investors. They do not understand what you do about real estate. They do not know real estate is really all about the numbers.
If the property value, expenses, price, rents, etc. all line up to be a good investment property, it is a good investment for you to buy.
Home owners are not investors. They do not understand that a house is just an investment to you. They get emotionally tied to “Their” house and become “emotionally invested” in the house.
Since you are an objective third party who is looking to profit off “their” house, they may get upset and view you as an enemy who is taking advantage of them.
The best way around this is to address their “Need” for selling the property. Maybe they “need” to sell the property because they are moving to another state and need the money to purchase a new home.
Focus your conversation on how “ its successors and or assigns ” will allow you to help them accomplish their move in the assignment of contract in real estate.
You are going to be working for them finding the best person to help them out of their situation. Being there for them and you are going to take care of their problem.
You May Have to Educate the Buyer and Seller what assignment of contract in real estate Is and Is Not
Since most home owners are not investors, you may have to educated the seller on what “its successors and/or assigns ” means for you as the buyer AND them as the seller.
This may take some time to “convince” the seller that by using “ its successors and or assigns ” in your contract will allow you to accomplish the goal of helping them to sell their house.
Explain that “its successors and or assigns ” will:
- Take care of their need to sell the property
- Save them money
- Allow you to go to work for them
- Give you the ability to structure a deal that will best suit their need of selling the property
- Already have an agreed upon price that is going to the seller
- Not change the contract you already have signed with them
Explain that “its successors and or assigns ” will not:
- Take money from them out of the deal
- Make them “lose” their property
- Is not going to take advantage of them
- Not destroy the property that they love
- Have hidden costs, fees, etc. because everything is disclosed in the beginning
Bank Owned Properties Usually Will Not Accept an Offer with “ And/Or Assigns ”
Banks seem to always put in their contracts the “not assignable” verbiage to prevent assignments of the contracts. I have yet to purchase a house from a bank that allows a buyer to assign the contract, whole or in part, to a third party.
If Your Buyer Who you are Signing the Property You Backs Out, It Looks Bad on YOU As An Investor
Usually investors know other investors who are interested in buying real estate. If you are a wholesaler, you should have a “Buyers” list. This is a list of investors that are ready to purchase property that fit their criteria.
I am on many wholesalers “Buyers” list all across the country. Because I purchase so many properties, I look for deals everywhere I can.
A problem may arise if you as the wholesaler sets up an assignment deal with a home owner and an investor and the deal has problems. It is your name on the line as the broker of the transaction between the two parties.
For example: A seller needs the home sold by July 15th so they can move onto purchase their next home.
The closing date you set up with the seller and the investor is the 15th of July and everything is moving along just fine.
On the 15th, the investor has trouble wiring the money to the escrow company and the deal is delayed.
The seller is now having problems with purchasing their new house and are not able to proceed because the sale does not go through on their old one.
This looks bad on you as the broker of the deal.
Also, if the problem is with the seller, the investor that you are working with may not buy through you again because you caused problems with this deal and they don’t want to use you anymore.
Real estate is a people business. If your name in the business is a bad one, you will not be able to last long because people will not trust you.
You are Still on the Hook for the Contract
In the example above, if your investor does not follow through with the purchase, you are now liable for the purchase of the property.
The contract with you and your seller are still in force and they can come after you for breach of contract.
At least, your earnest money you put down for the property will go to the seller.
The Buyer and Seller May Question How Much Money You Are Making in the Deal
This will most likely come up. Not usually from the investor because as long as the numbers line up it will still be a good deal to move forward with.
The seller on the other hand may be upset that you are making money that “Should” be theirs. In reality, this is not the case. You are basically acting as the agent brokering a sale.
Much like a realtor, you are helping them find a buyer for their property.
The best way to show them they are benefiting from this transaction, show them how much it would cost if they were to go through a realtor.
Show them realtors will take 6% from the deal and you are only taking a small portion of that in the assignment of contract in real estate.
Also, if you do use the “its successors and/or assigns” in your assignment of contract in real estate, you are not stuck with a contract. There are many options for a good property with a good contract that you can assign.
I get asked this question all the time. “What can you do if you can't assign a contract”?
This does sound scary, that you are forced to buy a house…
But this is totally not the case. I wrote an extensive article on what to do with the contract you already have. You can check it out here:
How have you seen “its successors and/or assigns ” in your real estate dealings?
Leave me a comment below to share how you have used its successors and/or assigns to make money in real estate.
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