Contract Assignment Question


#1

I am new to the business and have a park under contract that I may decide to pass on and I had some question about assigning the contract.

Am I still expected to complete DD if assigning the contract? Or does the person buying the contract complete?

Once the assignment fee is negotiated, is there any kind of formal agreement saying that party B is being assigned the contract from me? I don’t want the person being assigned to to be able to bail on the deal at the last second and then I’m legally obligated in some way to purchase the park or lose my earnest money.

Should I be trying to assign every contract that I decide to pass on? Or does it make sense to just drop the deal and move on?

Thank you for any suggestions.


#2

When you assign a contract, you will want to be easy to buy from. So, you should complete as much diligence as humanly possible for your buyer. I would say that you should do everything short of an on-site visit and third party reports. You want to be able to hand over a very robust set of documents and research to the person who is buying your contract. You typically only get one shot to assign a contract so make sure everything is out in the open as much as possible so everyone’s expectations are reasonably set on the front end. In other words, try to uncover as many surprises as possible so your buyer can accurately gauge their real interest.

You need to work with a title company and be very transparent with them as to what you intend to do. Every state is a little different on how an assignment should be handled so you need to take their guidance. In my experience, a good buyer is typically happy that you are making money in the deal too and will lend a helping hand where possible to make certain you get paid. Good buyers value repeat business simply because they have the capacity for repeat business. So, I would caution against working with a first timer on an assignment deal. Work with people who can buy multiple deals from you over time simply because they are less likely to do anything that may sour the relationship.

Lastly, I would only attempt to assign the contracts that stand a reasonable chance to actually close. Be careful with your time because there’s a lot of time wasters out there who will go under contract just for the heck of it and have no real intention to close. You should find 5-6 good, reliable buyers to run your deals past and largely stick to that small list. If all 5-6 of those trustworthy buyers pass, then it might not be a deal worth trying to assign.


#3

To add to what CharlesD said, make sure your contract states that the person buying the park is ‘you or it’s assignees’. Also, try to put in a clause that your earnest money is fully refundable - Frank and Dave’s contract has this info.


#4

Very grey area here and there is a quick way to get yourself a bad name. I have assigned a handful of deals. I have typically gone into a deal either knowing who the assigner or partner is or was willing to purchase it as my intention.

I think trying to assign parks a business ,solely, will not work. The reason being, its too small of a world and you will tarnish your name if you can not close a deal for a legitimate reason.

You have to figure out what your goals are. Some of my deals instead of assigning, allowed me to leverage into a partnership.

In regards to DD, you will want to try and get all the basics up front before doing third party ( this applies to if you buy or assign) the reason it might change with an assignment, the end buyer may have different parameters/vendor section or a multitude of other factors. There will be variance by each person.

We have shared losses on DD costs with the assigning party and have run several different scenarios.

My number one piece of advice is to only deal with proven people, people who stick to their word, genuine people. If something doesn’t turn out , you want ethical people that can work together.

MHP deals fall apart all the time for various DD items (i.e. permit, environmental etc) thats why the assigning realm is going to be different here and maybe not as neatly packaged as say a SFH. There are a lot of fewer players in this industry so its important to tread carefully as the end buyer pool is more limited (and again, maintaining your good reputation ) .

Also transparency to the seller. You have to tell them whats going on and that they know their is a risk the deal may not go through and you may not be the end buyer or you may be a partner on the deal or you may m be the one to end up closing on it. Don’t stick a mom and pop in the cold ( say a permit is bad thats different).

It can be a great way to help your options but you really have to consider all of the variables. Its much easier for me know seeing how the last few years played out but i know when going into your first one , that its hard to see all the things that you don’t know.

The list of potential interested people will be dependent upon the market, deal size, turn around if required etc so there might be like 2 people interested in the deal and there is a chance you might not know who they are or may know.

Good luck.


#5

I greatly appreciate everyone’s advice. You have given me some serious items to consider and it sounds like I will tread very carefully if I do decide to engage in contract assignment.


#6

Get to know the players in your market in that product type ahead of time as well. Thanks going to give you an edge. You will know if they are actively acquiring and could be someone to work with down the road ( or a potential assignee!)


#7

Great points all around. Definitely want to second letting the seller know. Nothing like having a seller catch you trying to assign before disclosing that you are going to assign (been there, done that). I thought it was best to find the buyer first and then disclose and figured the risk was low that pop would find out. I was wrong and it cost us a $150,000 assignment and cost our buyer a deal since everything revolved around making sure the seller financing was still in place for the next buyer.

If you’re out assigning deals Dave, feel free to add me on your short list. We’re aiming to buy around 10-15 parks each year and we have the capital sources to fund this type of activity.

Our Criteria:

  • Solid Market
  • 8 CAP or higher based on normalized expenses
  • 40+ Lots

#8

@Marvel_Equity thank you for that, sounds like excellent advice.

@CharlesD thank you for the story. I could definitely see a seller passing on an assignment if they are financing. I will definitely keep you on my list.