Assignment Fees Explained How Wholesalers Make Their Money
A plain-English guide to understanding assignment fees and profit margins.
Austin Beverigde
Tennessee
, Goliath Teammate
Understanding assignment fees can be a bit perplexing, especially if you're new to real estate wholesaling. You might be wondering how wholesalers profit from their deals and what these fees entail. This article breaks down the concept of assignment fees, helping you grasp how wholesalers make money while providing value to both sellers and buyers.
Quick Answer
Wholesalers make money through assignment fees, which are charged when they assign their purchase contract to another buyer. Typically, this fee ranges from a few hundred to several thousand dollars, depending on the property's value and the deal's complexity. The wholesaler finds distressed properties, negotiates a purchase price, and then sells the contract to an investor or end buyer for a profit.
What Are Assignment Fees?
Assignment fees are the charges that wholesalers impose when they transfer their rights to purchase a property to another buyer. This fee is essentially the wholesaler's profit for finding a good deal and facilitating the transaction. The process involves three main parties: the seller, the wholesaler, and the end buyer.
How Assignment Fees Work
When a wholesaler identifies a property that can be purchased below market value, they negotiate a contract with the seller. Instead of buying the property themselves, they find an end buyer (often an investor) and assign the contract to them. The end buyer pays the wholesaler an assignment fee, which is their profit for the deal.
How Much Are Assignment Fees?
Assignment fees can vary widely based on several factors, including the property's location, condition, and the overall market. Generally, these fees can range from:
500 to 1,500 dollars for lower-value properties.
1,500 to 5,000 dollars for mid-range properties.
5,000 to 20,000 dollars or more for high-value properties.
Examples of Assignment Fees
To illustrate how assignment fees work, consider the following scenarios:
Scenario 1: Low-Value Property
A wholesaler finds a distressed property listed at $50,000. They negotiate a purchase contract for $40,000. The wholesaler then finds an investor willing to pay $45,000 for the contract. The assignment fee is $5,000, which the wholesaler earns for facilitating the deal.
Scenario 2: High-Value Property
In another case, a wholesaler identifies a property valued at $300,000 and negotiates a contract for $250,000. They assign the contract to an investor for $260,000. Here, the wholesaler earns a $10,000 assignment fee.
Checklist for Understanding Assignment Fees
Understand the role of wholesalers in real estate transactions.
Know how to calculate potential assignment fees based on property value.
Research local market trends to gauge average assignment fees.
Identify potential buyers interested in investment properties.
Learn negotiation tactics to secure better contracts.
Common Mistakes to Avoid
When dealing with assignment fees, avoid these common pitfalls:
Not disclosing the assignment fee to the end buyer, which can lead to trust issues.
Overpricing the assignment fee, making it unattractive to potential buyers.
Failing to understand the local market, which can result in missed opportunities.
Neglecting to build a solid buyer's list, limiting your selling options.
Skipping due diligence on the property, leading to unexpected costs for the buyer.
FAQs
What is the average assignment fee?
The average assignment fee typically ranges from $1,000 to $10,000, depending on the property's value and the local market conditions. Some wholesalers may charge more for high-value properties.
Do wholesalers need a license to charge assignment fees?
Licensing requirements for wholesalers vary by state. In some areas, a real estate license may be required to legally charge assignment fees. It's essential to check local regulations.
Are assignment fees negotiable?
Yes, assignment fees are often negotiable. Wholesalers can adjust their fees based on the buyer's interest and the overall deal structure.
How do I find a good wholesaler?
To find a reputable wholesaler, network with local real estate investors, attend property auctions, or join real estate investment groups. Look for wholesalers with positive reviews and a track record of successful deals.
Can I assign a contract without a wholesaler?
Yes, individuals can assign contracts without a wholesaler, provided they have the legal right to do so. However, working with a wholesaler can simplify the process and provide access to better deals.
