All About Assignment Fee: The Only Guide You’ll Ever Need

In real estate, when a buyer and seller enter into a purchase contract, a buyer will on occasion decide to sell an assignment of the contract to another buyer. To facilitate this, there is generally an Assignment Fee charged to the new buyer.

What Constitutes An Assignment?

This is when someone has entered into a contract to purchase a property but decides to sell their interest in the property before they take possession, and before closing. The original buyer sells their contract to a new buyer but it should be noted, they are not actually selling the property since they do not yet own it.

They are really selling their agreement to purchase the property and the new buyer takes over the rights and obligations of the original buyer as contained in the original Purchase Agreement.

The original Purchase Agreement likely contains language regarding how an Assignment is to be handled and may include the need for the original seller to approve the Assignment to the new buyer. It should also detail the fee structure for the Assignment Fee, whether it is a flat fee or a percentage of either the original purchase price or the new purchase price agreed to between the original buyer and the new buyer.

How Do Assingment Fee Works?

Assignment fees are not all the same. If the property is a presale unit – one which has not yet been built – an assignment fee of between 2% and 5% of the sale price is fairly typical. This fee is payable to the developer.

In some instances, developers may also charge an Administration Fee to facilitate completion of
the Assignment Agreement. This can be anywhere from a few hundred dollars to several thousand dollars.

Profits

If you are selling an Assignment of a resale unit, any profits generated above the original purchase price to the amount being paid by the new buyer may have to be split with the original seller. Always check the original purchase contract to see how this is be addressed and if there is any question, check with your lawyer.

Taxes

If a profit is made on the sale of the Assignment, this income will most likely be taxed as income. Check with your accountant or financial advisor for the implications to your situation.

Real Estate Fee

If the property is listed for sale with a realtor, real estate fees and commissions will be an added expense impacting the overall profit to the original buyer. It should be noted, there may be restrictions on listing a property for sale, particularly in a presale situation, since the original developer/seller may limit how may units can be resold under Assignment Agreements.

Legal Fee

Legal fees on Assignment Agreements can be higher than with a straightforward real estate transaction. This is due to the complexities of dealing with more than one agreement since both the original Purchase Contract and the Assignment Agreement need to be handled.

If you are contemplating either buying or selling an Assignment, it’s best to obtain professional advice and assistance before undertaking. Failing to understand how the transaction works, or the associated financial considerations are best avoided by utilizing experienced professionals to guide you through the process to successful completion.