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What is a fair assignment fee best practices for wholesalers.

In the world of real estate wholesaling, an assignment fee is a key piece of the puzzle. But what exactly is it, and how do you make sure you're charging a fair amount? Whether you're a seasoned wholesaler or just getting started, understanding what makes a fair assignment fee can make or break your business. In this post, we'll cover what assignment fees are, how to calculate them, and best practices for making sure you're staying fair to both sellers and buyers.

What is an Assignment Fee in Wholesaling?

In simple terms, an assignment fee is the money a wholesaler earns for acting as the middleman between a seller and a buyer. Here's how it works:

The wholesaler finds a distressed property (one that’s often priced below market value).

The wholesaler gets the property under contract at a set price with the seller.

The wholesaler assigns that contract to a buyer (usually an investor), who pays the original price plus the assignment fee.

The assignment fee is essentially the wholesaler’s profit for finding the deal. So, how much is fair? That’s what we’re here to figure out!

How Much is a Fair Assignment Fee?

The exact amount can vary widely based on several factors, but most assignment fees range between $5,000 and $20,000. However, it's not uncommon for the fee to be lower in some markets or higher in others. The key is making sure both the buyer and the seller feel the fee is reasonable for the value you're providing.

Factors That Influence Assignment Fees:

Location : In high-demand areas, assignment fees can be higher because there’s more competition and properties cost more.

Deal Size : Larger deals often command larger assignment fees, but not always. If you're assigning a multi-million-dollar property, a fee of $20,000 or more might be considered reasonable.

Complexity of the Deal : If a deal involves more complexity, such as multiple parties or legal issues, a higher fee might be justified.

Market Conditions : When the real estate market is booming, assignment fees tend to increase because wholesalers bring more value by locating good deals in a competitive environment.

Another way to consider what is fair is:

The 10% Rule: Many wholesalers aim for about 10% of the purchase price as their assignment fee. So if you've got a house under contract for $100,000, you might shoot for a $10,000 assignment fee.

The $5,000 Minimum: Some wholesalers have a minimum fee they'll accept, often around $5,000. This helps ensure that even smaller deals are worth their time and effort.

The Spread Method: This involves looking at the difference between what you've got the property under contract for and its actual value. You might aim to keep about 30-50% of that spread as your fee.

The Value-Added Approach: Consider how much work you've put into the deal. Did you spend weeks negotiating? Did you solve complex title issues? The more value you've added, the more you can justify charging.

Remember, the key word here is "fair." You want to make sure you're compensated for your hard work, but you also want to leave enough meat on the bone for your end buyer to make a profit too. It's all about finding that sweet spot!

How to Calculate a Fair Assignment Fee

A fair assignment fee should reflect the value of the deal you're bringing to the table. But how do you know what’s fair? Here are a few guidelines to help you calculate your fee:

1. Keep it Proportional to the Property Price

A good rule of thumb is that your assignment fee should be proportional to the price of the property. For example, if you’re wholesaling a $100,000 home, a fee between $5,000 and $10,000 might be fair. However, for a $500,000 property, a higher fee (such as $20,000) could be justified.

2. Consider the Time and Effort Involved

If you’ve spent weeks negotiating, solving problems, and working through paperwork, it’s fair to charge a higher assignment fee. On the other hand, if the deal was quick and straightforward, a lower fee might be appropriate.

3. Check the Local Market

Take a look at what other wholesalers in your area are charging for similar deals. Staying competitive is important if you want to maintain good relationships with buyers and sellers.

Best Practices for Setting a Fair Assignment Fee

Charging a fair assignment fee isn't just about getting the most money possible. It's also about maintaining a good reputation and building trust with both sellers and buyers. Here are some best practices to keep in mind:

1. Be Transparent

Always disclose your assignment fee upfront. If the buyer or seller feels blindsided by a fee they weren’t expecting, it could hurt your credibility and cost you future deals. Being transparent from the beginning sets the stage for a smooth transaction.

2. Justify Your Fee

When possible, explain the value you’re bringing to the deal. If you found an incredible property at a steep discount or navigated a complex situation, make sure the buyer understands why your fee is worth it.

3. Build Long-Term Relationships

Repeat business is key to success in wholesaling. By charging reasonable assignment fees and providing value to both buyers and sellers, you’ll build a reputation as someone people want to work with. This can lead to more deals and referrals in the future.

4. Adjust Based on the Deal

Not every deal is the same, and your assignment fee shouldn’t be either. For smaller deals, consider lowering your fee to ensure the deal closes smoothly. On larger, more complex deals, a higher fee may be warranted.

What Happens if the Fee is Too High or Too Low?

Charging too much for an assignment fee can scare away buyers or leave them feeling like they’re not getting a good deal. On the flip side, charging too little can leave money on the table and undervalue the work you’ve put into the deal.

It’s all about finding a balance—one that reflects the value of the deal while keeping everyone happy.

The Do's and Don'ts of Assignment Fees

To wrap things up, let's go over some quick do's and don'ts:

Be fair and ethical in your pricing

Explain your fee clearly to buyers

Provide value that justifies your fee

Be willing to negotiate when necessary

Keep good records of all your transactions

Don't:

Try to hide or misrepresent your fee

Charge so much that your buyer can't profit

Undervalue your services

Forget to factor in your time and expenses

Ignore local laws and regulations about wholesaling

Final Thoughts

At the end of the day, determining a fair assignment fee comes down to understanding your market, providing value, and being transparent with all parties involved. Wholesaling can be an incredibly lucrative business when done right, and the assignment fee is just one part of the equation.

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Big and Small Properties is a group of real estate Investors who buy houses and land all over the United States. They specialize in buying, wholesaling, and flipping single, multi-family and commercial properties. They are CASH BUYERS creating a quick and easy selling process that moves with ease and efficiency from Offer to Closing. Big and Small Properties also partners with other experienced real estate investors in buying and selling property. Contact us at (877) 260-5566 or SUBSCRIBE to our blog to be added to our buyers list or to receive our latest blog posts.

Disclaimer: This article provides general information and should not be considered legal or financial advice. It's essential to consult with professionals for personalized guidance.

Assignment of contract

Justin Dossey

8 ways to increase your assignment fee as a wholesaler.

April 11, 2023
, How to , Real Estate Investing Tips

What is an assignment fee in real estate?

What’s the difference between an assignment contract and a double close?

Most importantly, how can you increase your per-deal profitability as a wholesaler?

Those are the questions we’re answering in this guide!

What is an Assignment Fee in Real Estate?

An assignment fee is the money a real estate wholesaler makes when flipping a contract to a cash buyer.

Let’s walk through an example.

If you’re a real estate wholesaler , then your job is to find homes for good deals and flip them to cash buyers.

(Here’s our complete beginner guide to wholesaling )

Imagine that you find a property that the seller is willing to sell for $80,000. You determine that the ARV ( After Repair Value ) of the home is about $200,000 and, after crunching the numbers, determine that the deal is a profitable one even after the cost of repairs.

So you and the seller sign an assignment contract, which is basically your promise to purchase the home for $80,000 within a certain period of time.

But instead of purchasing the home, you flip this contract to a cash buyer (usually another real estate investor with cash on hand) for $90,000. Since your assignment contract with the seller was $80,000, you make an assignment fee of $10,000.

You can look at this as your fee for finding the deal for the cash buyer.

Assignment Contract or Double Close?

Now you might be thinking to yourself, “Why would a cash buyer be willing to pay $10,000 more for the home than they need to?”

First, if the cash buyer still stands to make a hefty profit after factoring in your assignment fee (which they should), then it’s not really a big deal to them.

In fact, high-quality cash buyers rarely care how much your profit is so long as they’re getting a good deal.

However, if you (the wholesaler) are still worried about the cash buyer rejecting your assignment fee, then you can instead double close. Double closing in real estate is when two transactions happen simultaneously (the seller sells to you and you sell to the cash buyer).

Here’s how RE Tipster explains it…

“A Double Closing (also known as a simultaneous closing) is a coordinated real estate transaction involving three parties: a seller, a real estate wholesaler (acting as a middle man) and an end-buyer. As the name implies, double closings involve two separate transactions that occur on the same day. The initial purchase and sale between the seller and the investor is the A-to-B transaction, and the purchase and sale between the investor and the end-buyer is the B-to-C transaction.”

In this case, it’s not necessary to disclose your assignment fee to your cash buyer.

How To Increase Your Assignment Fee as a Wholesaler

When Ryan Dossey — the founder of Call Porter — started wholesaling real estate, he was doing a lot of $3k and $4k deals.

His cost for acquiring those deals hovered between $1k and $2k… so he was barely breaking even.

Watching other wholesalers profit $10k, $20k, even $50k from a single deal, Ryan committed to doing things differently — learning from those with larger assignment fees and applying those lessons to his own business.

Now he regularly does wholesale deals that profit $16,000 or more.

Check out the video below!

1. Use The 75% Rule

The 75% rule states that investors should pay no more than 75% of the property’s ARV minus the cost of repairs. As a wholesaler, you also need to subtract out your assignment fee. Here’s how that formula works…

(ARV x .75) – Repair Costs – Assignment Fee = Max You Should Pay

Imagine that you found a property with an ARV of $250,000 and you expect repair costs to be about $20,000. Also, you want to make $10,000. Here’s how the math would work out…

($250,000 x .75) – $20,000 – $10,000 = $157,500

(For the cost of repairs, Ryan doesn’t just look at what needs to be fixed right now , but within the next 1-3 years… because this is what your buyers are going to care about)

This means that you should pay a max of $157,500 — that’s your max allowable offer (see the next section). This ensures that you and your buyer will make good money on the property.

2. Find Your Max Allowable Offer

One of the biggest game-changers for Ryan’s business is that he implemented a max allowable offer. After you’ve calculated the ARV of the home as well as your ideal offer using the 75% rule, set your MAO as a tangible number .

Then, when you negotiate with the seller, you’ll know the most amount of money that you’re willing to offer — this removes any guesswork from the equation and gives you permission to say, “No. I’m sorry. Our business just can’t afford to go any lower than XX.”

This is a tactic that salespeople use all the time… and it’s very effective.

When you have a clearcut offer that you can’t exceed, then it’s just business… and the seller can choose to accept or reject your offer.

Don’t sit down at the negotiation table without knowing your MAO… and make sure you have the willpower to stick to that number.

3. Learn To Negotiate

It’s a little funny. But the first time that Ryan reached out to his friend who’d been doing high-profit wholesale deals and asked, “How are you doing it?” Ryan’s friend responded and said…

“You know why you’re not making more money on your deals, Ryan? It’s because you’re a bitch.”

What he meant was that Ryan didn’t have the confidence to negotiate high-profit deals with sellers… and until he garnered that gusto, he’d continue to make less money than he desired.

That’s why knowing how to negotiate is so important.

Without the confidence (and math ) to say, “This is what my business can offer.” you’re going to make very little money on your deals.

Using the 75% rule and having a max allowable offer will help you negotiate more effectively with sellers. You’ll know what you can realistically afford and what you stand to make.

And then, you’ll increase how much money you’re making on each deal and how profitable your business is overall!

4. Double Close Bigger Deals

It’s possible that as your assignment fee increases, certain cash buyers will shy away from working with you… because they don’t like that you’re making so much money.

(Of course, high-quality cash buyers won’t if they’re getting a good deal — see the next tip)

If that happens — or even if you’re just worried about it — you can start double closing your deals, which makes it so that you don’t have to disclose the size of your assignment fee.

Find great deals, make sure they’re still profitable for your cash buyers, raise your assignment fee, and then double close.

Easy peasy.

5. Find High-Quality Cash Buyers

As I’ve mentioned before, high-quality cash buyers won’t care about how much your assignment fee is so long as you keep passing them good deals.

So it’s worth spending a bit of time to find these types of buyers.

Check out our full guide to finding cash buyers over here.

6. Stop Trying to Convince Every Prospect to Work With You

Not everyone wants to work with you.

There, I said it.

I know you’re an amazing sales person (it probably comes naturally to you). I know that you’ve convinced people in the past to do things that they weren’t prone to do.

But here’s the truth: those instances are the exception, not the rule.

More often than not, unmotivated sellers, or kinda motivated sellers aren’t going to work with you.

They’re just going to waste your time.

And the faster that you kick those time-wasters to the curb, the better.

But isn’t that just a part of the business? Isn’t it natural to win some and lose some?

Yes. Of course.

But it’s not natural (or healthy) to spend time with tire-kicking prospects when you could spend that same time with motivated sellers…

…people who are in a hurry to sell their home. They’re in a bind and they aren’t just thinking of working with you, but your very business is a god-send.

They need to work with you. They need to sell their home. They need a way out of their situation.

Why are those people more profitable?

For a few reasons:

They’re easier to convince to work with you in the first place (meaning you waste less time and money trying to convince them).
They’re less interested in arguing against your offer and more interested in escaping their current situation.

So, recognize time-wasting prospects faster, kick them to the curb, and spend more time on the phone with their motivated counterparts.

You’ll decrease time-and-money overhead and increase the profitability of each deal that you do.

Schedule a demo with us to find out how we can help you spend less time on the phone and more time closing high-profit deals.

7. Don’t Try to Be Different (Do What Works )

Be different.

Be special.

Be a lone wolf.

The entrepreneurial world is riddled with these messages. Go against the grain. Forge your own blade. Blaze a new trail.

That’s where success lies. And to follow the crowd is madness.

But here’s what’s easy for us entrepreneurs to forget: by building a business (or starting a side hustle), we’ve already gone against the grain.

(most people never start their own business)

And there is a point where fighting what works becomes a silly battle of the ego rather than a good business idea (think Google Glass or Google+ – sorry Larry and Sergey).

Point is, doing what you already know works is often more profitable than trying new things.

Know which marketing channel brings in leads? Do more of that. Know which sales script converts the most prospects? Use that. Know which zip codes provide the best ROI, increase your marketing budget for that area.

Sure. Trying new things is important when what you’re doing isn’t already working .

But as my pops always said, “If it ain’t broke, don’t fix it.”

Spend more resources on what works and cut resources on what doesn’t. Your per-deal profitability will naturally increase.

8. Use the 80/20 Rule

Just a few of the things that you do every day…

…are sustaining your business…

…growing your business…

and increasing your profitability.

While many of the things that you do are a complete and utter waste of time.

Maybe you spend too much time on the phone with people who don’t actually want to work with you.

Maybe you spend too much money trying to make marketing methods work for your business (even though they don’t) because they work for someone else’s business.

Whatever the case, remember this all-important rule: 20% of the work produces 80% of the results. And 80% of the work only produces 20% of the results.

This is true with everything in life.

It’s why going on just one date with your spouse makes you feel a million times closer.

It’s why many of the most profitable deals you’ve ever done were also some of the easiest to nail down.

It’s why some things just seem to work and other things don’t.

Fortunately, you can use the 80/20 rule to your advantage.

By focussing more resources on the 20% of work that produces 80% of the results and spending less or no time on the near-worthless 80%.

Do what works. Cut what doesn’t.

Final Thoughts on Increasing Your Assignment Fee

There are two ways to build your business.

You can increase the number of deals you do every month with similar profit margins ($5k-$10k, for instance) and you can work like a dog. You can wonder why your business isn’t providing you with the time freedom that you crave and why you’re less happy than you were even at your W-2.

Or you can work smarter, not harder.

You can increase the profit on each deal you do by focussing on higher-quality deals, spending less time on the phone with half-motivated sellers (who are just there to waste your time), and building a business that serves you.

One, even, that you can leave behind every now and again to go on vacation with your family…

Without stressing about the darn thing going under.

So use the above three tips to build a business that makes you more money with less work.

Choose to work smarter, not harder, and your average assignment fee will naturally increase.