'Considerably' Confused

[Doug Pretorius (ON) 9]

A little sooner than I expected, but here goes with my first question on CA's...

 

While obviously one of the simplest real estate transactions possible, there is one aspect of CA's that has continually eluded me:

How do you apply the buyer's assignment fee to the purchase price? ... Or don't you?

 

I'll use a local associate's deals as an example since he's done far more than I have (no CAs though, he buys houses for cash and then LOs them). He's collected anything from $2,000-$40,000 option consideration (this is on houses in the $150-$200k range). Obviously a $2k fee could easily just be a fee, with none of it going towards purchase. But when we're talking $40k, most of it MUST go towards the purchase.

 

I'm just unsure how you work this variable into the deal when you don't know how much you'll get until you get it

[Adam King (MI) 1]

Doug,

You can do the deals several ways, but here is how I do it. First off, I ALWAYS try to get the entire option. If the seller balks at this, or needs to have more than first months rent, then I will take what ever we negotiate until it hits my bottom line of $2,500 per deal. (Lately I have been taking half of the option plus half of first months rent)

 

The money I take is assigned as part of the non-refundable option consideration. The consideration is then subtracted from the purchase price if the buyer buys.

 

I.e. sales price $100K Seller walks away with the amount minus my assignment fee. I.e. if I make $2,500 the seller will get $97,500 if there is no other consideration applied to the sales price.

Regards,

Adam

[Doug Pretorius (ON) 9]

Adam,

The silly thing is that I understand exactly how it works the way you're doing these deals (assigning back to the seller). Where I'm confused is how to do it when you're assigning to the buyer.

 

Hold on ... I could include it in the assignment agreement and have the the seller, buyer and myself all sign it (that way the seller is acknowledging that the money will be applied to the purchase price) in that way my release of liability with both of them can even be wrapped up all in the same document.

 

Hope I didn't lose anyone there! I'll try to clarify:

 

Assignment agreement passes rights from me to the buyer for a fee (which will be applied to the purchase price). The seller signs the same agreement to acknowledge that the assignment fee will be going towards the purchase price. Finally, all in the same document, the seller and buyer both release me from any further liability.

 

All that remains is a receipt to the seller IF they're getting part of the assignment fee. There! That reduces the amount of paperwork to just 2 (or maybe 3) documents.

 

Unless I've missed something? If not, sorry for answering my own question

[MichaelC 160]

Doug, you already answered as I would have. Your description of the process is exactly how I would have explained it.

Adam does his CA's in a way that is very different than my approach. Obviously, I prefer my method, but his way works for him and as he and I have already discussed: if it ain't broke, don't fix it. Meaning there is room for different approaches to reach the same end. I won't speak for Adam. He can certainly explain what he does, why he does it, and how.

As for me, you seem to have a very clear understanding of the process as I do these deals:

Assignment agreement passes rights from me to the buyer for a fee (which will be applied to the purchase price). The seller signs the same agreement to acknowledge that the assignment fee will be going towards the purchase price. Finally, all in the same document, the seller and buyer both release me from any further liability.

 

All that remains is a receipt to the seller IF they're getting part of the assignment fee. There! That reduces the amount of paperwork to just 2 (or maybe 3) documents.

Bullseye! Mooseheads all around!

If you need further clarification, let us know.

[Adam King (MI) 1]

Doug,

There you have it. And he said it for FREE! lol

My process does actually accumulate more paperwork, as you probably already know. I do have an extra letter of assignment acknowledging the assignment back to the seller (Or whom ever I assign it to) that all parties sign. The original assignment releases me from liability from the seller (And gives them control of the deal and all of the equity) and acknowledges that the consideration will be applied to the purchase price IF the TB exercises their option. And the "Letter of assignment" releases me from liability from the buyer and shows their obligations to the assignee. (Seller etc)

Hope that helps,

Adam

[Doug Pretorius (ON) 9]

Excellent! Thanks guys it all makes sense now. I don't know why I had such a hard time getting my head around that one little issue.

 

In the end I don't think it matters which way it's done (Michael's or Adam's) because the end result is the same for all parties.

 

Thanks again for your help. Time for me to start talking to sellers again.

[-Tony- 0]

Wow 40k oh is that Canadian

 

Anyway okay what about a straight option for 12 month can you assign it with out the seller knowing your profit. This will be my first and second straight assignment and the assignment agreement in your package has:

 

xxx the Buyer/Tenant under an agreement dated xx (hereinafter, “Agreement”), by and between Assignor and _______, (hereinafter, “Seller”), hereby assigns all right, title and interest in said agreement to ___xxx___, (hereinafter, “Assignee”), for the sum and consideration of $___xxxx____

-------------------------break-------------------------------------

 

I hereby accept and approve the terms of this Assignment and agree to hold Assignor harmless from any further liability or obligation under our Agreement.

 

Seller _______________________________

 

I don't want the seller knowing what I made

[MichaelC 160]

Tony, yes, you can hide your profit from the seller if this concerns you.

That Assignment of Agreement doc you quoted has a line for the seller to sign. However, that just falls under the CYA category. The original Lease with Option to Purchase Agreement between you and the seller already allows you to assign the agreement, without the need for the seller's additional signature.

Or, you can have the seller sign the Assignment of Agreement before filling in the amount you are receiving.

[Doug Pretorius (ON) 9]

Tony: HEY, watch it mister! The Canadian dollar has been doing pretty well lately I think it has worked its way up to roughly the equivalent of Monopoly money.

 

As for not wanting the seller to know how much you've made. That certainly makes sense with a pure option where you could be getting quite a chunk. But with cooperative assignments your profit is very rarely going to be more than the seller would have had to pay an agent, so it wouldn't make much difference.

[-Tony- 0]

1st 5k option 2.5k me =7.5k end buyer

2nd 7.5k op 5k me =12.5k end buyer

 

see why hope they don't read this forum...

 

Or, you can have the seller sign the Assignment of Agreement before filling in the amount you are receiving.

 

I thought about that too or $500 can turn to $5,000 easily same with $250 to $2,500 hand written of course

[MichaelC 160]

I thought about that too or $500 can turn to $5,000 easily same with $250 to $2,500 hand written of course

The tricks one can learn in the County lock up.