Assignments of real estate contracts are becoming more common, particularly among investors and wholesalers. Questions often arise when an agent has a transaction in which the buyer who signed the Contract is not the person actually planning to close on the purchase. These situations can be tricky, and knowing the rules under both the FR/BAR “AS IS” and the FR/BAR “Standard” Contract forms* will help you protect your clients from unnecessary surprises.
What is an Assignment of Contract?
In its simplest terms, an assignment of Contract allows a buyer to allocate, designate, or transfer its rights under a purchase and sale agreement (i.e., the “Contract”) to some other person or entity prior to closing. When the Contract is assigned, a new buyer (the “Assignee”) steps into the shoes of the original buyer (the “Assignor”). That switch can be perfectly legal when allowed under the Contract, but many times raises questions about liability and performance.
How do the FR/BAR Contracts Handle Assignments?
Most residential transactions in Florida utilize a version of the FR/BAR contracts, which spell out (in Section 7), whether or not an assignment is allowed:
- Assignable without liability: The original buyer is released once the Contract is assigned.
- • Assignable with liability: The original buyer can assign the Contract, but remains liable if the new buyer defaults.
- • Not assignable: The original buyer cannot assign the Contract unless the seller consents.
What Issues Should Buyers and Sellers Expect?
Assignments can and do most often work smoothly; however, they can also raise challenges:
For buyers (both the original and the assignee):
- The original buyer may still be liable if the assignee fails to fulfill the “buyer’s” contractual obligations.
- Lenders can balk at and reject an assignment, leaving the deal without financing.
- Details can fall through the cracks if the transfer of the Contract is rushed or not handled with care.
For sellers: - Sellers may lose confidence that the deal is going to close – the seller learns late in the process that a different buyer is stepping in.
- The deal can collapse if the assignee lacks the necessary creditworthiness, funding, or motivation.
- Disputes may arise over the earnest money deposit when an assignment is not properly documented.
Sellers can be caught off guard when a contract is quietly assigned (i.e., not needing seller consent), and the assignee did not have financing lined up, or is otherwise not capable of completing the transaction.0
What Guidance Can Realtors Provide?
When an agent encounters an assignment, there are some practical steps the agent can take:
- Check the Contract to confirm whether an assignment is permitted, not permitted, or permitted only with seller consent.
- Be upfront with clients. If a buyer intends to assign the Contract, make sure the seller understands what that means. Remind buyers that an assignment of the Contract may not relieve that buyer of liability.
- “Get it in writing”. Every assignment should be documented in a written, signed agreement with clear and unambiguous terms.
- Know when to bring in legal counsel. If there is pushback from the seller or uncertainty about liability, involving an attorney early on can prevent costly mistakes or delays.
Final Thoughts
An assignment can be a useful tool for investors and a path to closing for sellers, but it can also create unnecessary risks if handled casually. For Realtors, the keys are 1) spotting when an assignment is first proposed, 2) knowing what the FR/BAR contracts say about assignments, and 3) making sure clients understand the risks and consequences. If you come across an assignment and want clarity on how to proceed, reach out to your local real estate attorney for advice and assistance.
*the FR/BAR Residential Contract For Sale and Purchase, and the “AS IS” Residential Contract For Sale and Purchase (approved by The Florida Realtors and The Florida Bar, version (12/24) © 2024)
