Real estate is full of all sorts of interesting twists and turns. For many agents, this diversity is all part of the thrill. But no matter how you feel about it, change is the norm and no two transactions are the same. For example, sometimes, in the midst of a transaction, a buyer may need to assign their contract to another buyer. This can even mean adding them to the title or the loan. But whenever a buyer needs to officially include a new buyer in the transaction, we employ what’s called an assignment of contract.
Reasons Why an Assignment of Contract May Be Needed
You’ll find a multitude of reasons where an assignment of contract comes in handy. One of the most common arises when a buyer needs some assistance with the purchase. Say for example a young couple is purchasing their first home but can’t quite cover the costs. By employing an assignment of contract, they can add a parent as a co-buyer to ease their financial strain.
Sometimes you’ll find a buyer who wants to assign the contract to an entity after entering into the agreement. For example, say an individual enters into an agreement but, after speaking to their legal counsel, decides it’s more beneficial to have their corporation or trust on the documents. In this case, they can use an assignment of contract to transfer the purchaser’s role to the entity.
And finally, there are those unfortunate circumstances where a partnership dissolves during the transaction. In this case, you can use an assignment of contract to remove the problem buyer.
The Right of Assignment of Contract Goes to the Buyer
The California Residential Purchase Agreement (RPA), issued by C.A.R., gives the right of assignment to the buyer. They have the authority to grant full or partial assignment to another buyer as long as they go through the proper procedure. This means that the buyer must use the Assignment of Agreement Addendum (AOAA). The AOAA supports an assignment of contract by formally requesting approval from the seller to add or transfer assignment. But since C.A.R. grants the right of assignment to the buyer, the seller cannot withhold this approval without a valid reason. The latest version of the AOAA gives the buyer just 17 days to issue this request unless otherwise negotiated. Previously, time limits weren’t instituted.
Filling Out the Assignment of Agreement Addendum
On the AOAA, you’ll need to check off the corresponding box to indicate whether you are instituting total or partial assignment of contract. A partial assignment indicates that you’ll be adding a co-buyer to the transaction. A total assignment could mean you’ll be adding or even removing a buyer from the transaction. In some cases, you may even want to assign an entity (such as a trust) as a buyer. A specific box can be checked for this scenario, as well. You’ll need to specify the assignee’s name in Section C of the AOAA.
Details of Executing an Assignment of Agreement
As the assignee, it will be your responsibility to initial every document signed prior to the AOAA. Examples include the initial contract, documents, disclosures, and reports signed by the original buyer. The buyer then delivers copies to the seller for their records.
The original contract’s stated time frame must remain unless otherwise agreed. In cases in which time frame extensions or alterations are necessary, the buyer must draft an ETA for the new contingency time frames or add an addendum to change them.
It’s the buyer’s responsibility to deliver these documents to the seller. However, there’s plenty of freedom in how to orchestrate this. Many choose to simply deliver the accompanying documents with the AOAA itself. Others prefer to wait to deliver the documents until the seller agrees to the assignment. You can also arrange a specific date and time to return the documents to the seller. The “Time of Return Assignee-Initialed Prior Documents” section of the form provides the place to state this.
Disclosing Financial Details to the Seller
The buyer or the new assignee is also required to provide a pre-approval to the seller if they plan to obtain financing. Along similar lines, the buyer is obligated to disclose to the seller whether the assignee is receiving monetary consideration for the agreement. Once these details are finalized and the seller executes the AOAA, you can complete your assignment of contract by sending the form over to escrow.
Jenny Manukyan is the Transaction Manager here at JohnHart Real Estate, as well as an agent herself. Being the supervisor and "linchpin" in our short sale operations, has endowed Jenny with invaluable knowledge; and here on the JohnHart Gazette she hopes to share that with you all!
In the rare scenario that a seller does not approve of the assignment, can the earnest money deposit still be returned?