What Is an Assignment Fee in Real Estate?

An assignment fee in real estate is a payment made by one party to another for the right to take over an existing purchase contract. This fee compensates an initial buyer for their effort in securing a property under contract and then transferring their contractual position to a new buyer. It represents the value created by identifying a suitable property and negotiating its terms, without the initial buyer ever taking ownership. This mechanism facilitates the transfer of property rights before the original sale is finalized.

Understanding Assignment Transactions

A real estate assignment transaction begins when an initial buyer, known as the assignor, enters into a purchase agreement with a property seller. The assignor then seeks to transfer their rights and obligations under this original contract to a new buyer, referred to as the assignee. This transfer is formalized through an assignment contract, which places the assignee in the assignor’s position to proceed with the property purchase under the original terms. While the assignor steps out of the transaction, the original contract between the seller and the assignor remains the foundation until the assignee completes the purchase. The assignment fee is the financial consideration the assignee pays to the assignor for acquiring these contractual rights.

The Role of the Assignment Fee

The assignment fee serves as compensation for the assignor’s role in identifying a potential deal, negotiating the initial purchase agreement, and finding a suitable assignee, and is typically paid by the assignee directly to the assignor. The amount of the fee can be a fixed sum or a percentage of the difference between the original contract price and the price the assignee pays for the property. For example, if an assignor contracts to purchase a property for $200,000 and assigns that contract to an assignee for $215,000, the assignment fee would be $15,000. Assignment fees commonly range from a few thousand dollars to $20,000 or more. The terms of the assignment fee, including its amount and payment schedule, are explicitly stated within the assignment agreement, and it is frequently paid at the time the assignment agreement is signed or at the closing of the original property transaction.

Key Aspects of Assignment Fees

Assignment fees are a common feature in real estate wholesaling, where an investor secures a property under contract with the intent to transfer it to another buyer, thereby avoiding typical closing costs and holding expenses. A fundamental requirement for an assignment transaction is that the original purchase agreement must allow for the assignment of the contract. Many standard real estate contracts include clauses that address assignability, often requiring the seller’s written consent for the transfer. The assignment fee is distinct from the property’s purchase price and is a payment for the contractual rights, not for the property itself. All parties involved, including the original seller, are typically aware of this financial arrangement.