Real Estate Purchase Contract

At the time of purchasing real estate, whether it be residential, commercial or vacant land, the ultimate buyer may not be identified at the time the offer is made.  Considerations such as tax issues, liability issues, financing issues, investor issues and estate planning issues may determine the ultimate owner of the property.  Where there are other competitive bids, a buyer may have to move quickly in order to take advantage of the opportunity.  A potential buyer may want to get the property under contract, then later decide on the ultimate owner.

What Does A Buyer Do?

In such instances, a buyer may desire to assign the contractual rights to an entity that is not yet in existence.  This may be the buyer’s wholly owned LLC, an affiliated company, a trust or other entity.

As a general rule, a buyer’s interest in a real estate contract is freely assignable unless the seller imposes separate contractual limitations.  The words “Mr.  Buyer and/or Assignee,” are sufficient to make the assignment.

Those words alone, however, are not enough to fully document the transaction.  There are further necessary steps:

  1. The assignee as the ultimate buyer must accept the assignment;
  2. A separate assignment agreement must be entered into between the buyer and the assignee, whereby the buyer assigns any and all rights, title and/or interest in the underlying purchase agreement, the escrow and the property to the assignee, and the assignee accepts such assignment and agrees to be bound by the terms and conditions of the purchase agreement.
  3. If the escrow agreement has already been signed, the consent of the escrow agent has to be obtained.
  4. Ernest money issues have to be dealt with.
  5. If the original buyer seeks to be relieved of any duties and liabilities under the purchase contract, a consent of the seller would have to be obtained.
  6. If the seller has conditioned the assignment, the seller and the title company must accept the assignment under the purchase contract.

As a practical matter, sellers generally have less concern if the assignment is to the buyer’s trust, a limited liability company owned by the buyer or an affiliated company.  In other instances, if the ultimate owner is not known, the seller may be wary that the buyer is simply flipping the property during the due diligence period to another buyer and make off with substantial profit.  Seller also may be wary of the financial capacity of the ultimate owner.

A very simple assignment agreement between buyer and the ultimate owner would provide that:

(i) this assignment is effective between ______ as assignor and ______ as assignee as of the ___ date of 20__;

(ii) buyer as assignor hereby assigns any and all rights, title and/or interest in the underlying purchase agreement, the escrow and the underlying property to the assignee;

(iii) this assignment relates to a specific real estate purchase contract with any and all amendments thereto;

(iv) assignee hereby accepts all the terms and conditions of the purchase agreement and the duties and obligations under the purchase contract;

(v) this transaction is handled by XYZ Title Company, and the assignee accepts the assignment and is substituted as buyer in connection with the purchase transaction; and

(vi) assignee will execute any and all documents necessary and required to accomplish the assignment as requested by the title company and/or seller.

While the foregoing accomplishes the assignment of the contractual rights from the initial buyer to the ultimate owner, the rights, duties and considerations in connection with the assignment are often separately negotiated.

Lat J. Celmins