Wholesaling
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback
Updated over 4 years ago, 04/28/2020
Determining wholesaler assignment fee
I really need your help BP, I am fairly new at wholesaling properties even though I quite a few under my belt. Recently another wholesaler told me I was selling myself short on assignment fees. He (the other wholesaler) said you can assignment however much you want. Just for reference, he has wholesaled over 80 properties. I use the formulas of 10-15% of the contract price or a standard 5k assignment fee. I feel assignment 10k on a 20k contract is just greedy in that case I would use the 10-15% route. Keep in mind I'm trying to build a successful real estate investing career, not just grab some quick cash. I feel like at the end of the contract when people are feeling the 'Did I just get robbed" feeling, they less likely to refer me to someone else or come back and have me find another property for them but if I give them a fair deal, then referrals and repeat business will come naturally. On the same note, I don't want to sell myself short.
So my question is how are the more seasoned wholesalers determining their assignment fees?
As hard of an answer to give you it is deal specific. You want to make sure your assignment fee leaves enough profit on the table for the properties end result. Sometimes that means $2K, sometimes that means $15K. It truly is deal specific. My best recommendation is work the deal backwards from where you believe it will end up (ie. a fix and flip with flip comps with your repair assessment). I think if you try to apply a formula you may be selling yourself short. Work the deal backwards!
Thank you so much Kevin. That truly helps.
Something to think about: If you inherited property today that a rehabber would be happy to get for $50K, (ARV $100K), would you mark it up $5 or 10K? 10% or 15%? Or would you sell it for $50K?
Make it harder. If you got the same property under contract for $25K because the seller said he'd take $25K if you close in 5 days, would you mark it up $5 or 10K? Remember the buyer wants it for 50K (ARV 100K)? Do you sell it for less than 50K because you are a nice person?
There will be always be buyers that get all weird on you and who will judge your profit (if they know it) instead of being clear about what they want to pay. Stay away from those buyers. I've made twice as much as some of my regular rehab buyers on many deals and they know it. They paid what they wanted and sold for their target profit (usually around 20K). I sold the properties for what the buyer's wanted to pay, sometimes with bidding wars. Some of my deals aren't good examples because they involve legal work and probate problems and take a long time to get to market. But if the rehabber or landlord buyer gets his deal, I don't look back about marking it up to that price. Again, just something to think about.
Marie and Kevin both hit the nail on the head. Your end buyer shouldn't care what you make. If they won't buy the property because they think you are making too much then they are the ones with the problem. I've made as little as $500 when the deal was skinny and as much as $65,000 when it was fat. Your reputation won't be damaged by how much you make. Your reputation as a wholesaler gets damaged when you consistently bring your buyers deals that are not deals.
K. Marie Poe,
Great perspective! I will keep that in mind while determining my next assignment fee.
Originally posted by Kevin Kaczmarek:
I absolutely agree with this. I have only two types of buyers; rehabbers and buy and hold types. Each are looking for something different, and have different criteria for spending their money. Get to know very well what this is.
As K. Marie pointed out, the assignment fee should be the difference between what your buyers will pay, and the price you negotiated. If you fail to negotiate in your fee, then you really do sell yourself short. That's why it's important to work the deal backwards...your "formula" should be on the front end of negotiation rather than the back end of sales.
I am in the process of closing a deal, and I used the working backwards method to come up with a my assignment fee and what a difference it makes. I know see that I have previously sold myself short. Thank you very much BP for helping with this issue.
Most wholesalers have a hard time selling their deals because they not don't even know the formula.
1st find out how much there asking price is because their asking price might be lower than your MAO.
MAO = MAXIMUM Allowable Offer (ARV x .65) - Repairs = MAO but not your 1st offer. Your assignment fee is the spread between how much you buy it for vs how much you sell it for. Most investors want a .70 discount.
Example:
ARV = $200,000
Repairs = $30,000
(200,000 x .65) = 130,000 - 30,000 = 100,000 MAO... You have to get the seller to sell it to you for less than $100K.
or
(ARV x .70) - Repairs - Your Fee ($20,000) = MAO
(200,000 x .70) = 140,000 - 30,000 - $20,000 = $90,000 So you need to buy it from your seller for less than $90K.
or
This is what most new investors do. The owner wants $150K and they'll just get it under contract for $150K and you want $20K Assignment Fee = $170K and It's only worth $200K an they haven't even checked out the comps yet or gotten a repair estimate then they wondering why they can't find a buyer?
Originally posted by @Toris Diggs:
Most wholesalers have a hard time selling their deals because they not don't even know the formula.
1st find out how much there asking price is because their asking price might be lower than your MAO.
MAO = MAXIMUM Allowable Offer (ARV x .65) - Repairs = MAO but not your 1st offer. Your assignment fee is the spread between how much you buy it for vs how much you sell it for. Most investors want a .70 discount.
Example:
ARV = $200,000
Repairs = $30,000
(200,000 x .65) = 130,000 - 30,000 = 100,000 MAO... You have to get the seller to sell it to you for less than $100K.
or
(ARV x .70) - Repairs - Your Fee ($20,000) = MAO
(200,000 x .70) = 140,000 - 30,000 - $20,000 = $90,000 So you need to buy it from your seller for less than $90K.
or
This is what most new investors do. The owner wants $150K and they'll just get it under contract for $150K and you want $20K Assignment Fee = $170K and It's only worth $200K an they haven't even checked out the comps yet or gotten a repair estimate then they wondering why they can't find a buyer?
Great post Toris! Lots of great info. I had some previous real estate and construction experience in the past and looking to get back into it around the Atlanta area. I may need to chat with you a little more at some point if you don't mind!
@Toris Diggs is there a particular reason that you used 70% in one example, and 65% in the other?