In real estate, a buyer may assign their purchase contract to another buyer, effectively stepping out of the deal and letting someone else close on the property. The assignor remains secondarily liable unless the other original party releases them. Most real estate contracts include a clause that either permits or prohibits assignment — if the contract is silent, assignment is generally allowed. Assignment differs from novation in that the original party remains liable under an assignment.
An investor enters into a purchase agreement to buy a property for $200,000. Before closing, the investor assigns the contract to another buyer for $215,000, pocketing the $15,000 difference as an assignment fee. The new buyer closes directly with the original seller at $200,000.
The critical exam distinction is between assignment and novation. In an assignment, the original party (assignor) remains secondarily liable. In a novation, the original party is completely released. Remember: all contract rights are assignable unless the contract specifically prohibits it or the obligations are personal in nature.
Related Terms
Related Concepts
A purchase agreement is a legally binding contract between a buyer and seller that outlines the terms and conditions for the sale of real property. It is also commonly called a sales contract, purchase and sale agreement, or earnest money agreement.
Offer and acceptance is the process by which one party proposes specific terms for a contract and the other party agrees to those exact terms, creating mutual assent. This mutual agreement, also called a meeting of the minds, is an essential element of every valid contract.
A counteroffer is a response to an original offer that changes one or more terms of the offer, effectively rejecting the original offer and creating a new offer. The party who makes the counteroffer becomes the new offeror.
Consideration is something of value exchanged between parties to a contract, making the agreement legally binding. It can be money, a promise to act, a promise to refrain from acting, or anything else of value.
Earnest money is a deposit made by the buyer at the time of the offer or shortly after to demonstrate good faith and serious intent to purchase the property. It is also called a good faith deposit.
Frequently Asked Questions
Study This in Your State
Assignment of Contract may have state-specific rules. Choose your state to study Contracts with localized content: