The contract: assignment, deposits and deadlines
Wholesaling the legal way · 1 study hours
Bottom line: Until you assign, you are bound to the seller by a contract with a deposit and deadlines, so read the assignment clause, know who holds the deposit, and plan your exit before the due-diligence deadline, because failing to find a buyer can cost you the deposit and more.
Bottom line first. The contract is the product you sell, and it is also the thing that can hurt you. Until a buyer takes it over, you are the one bound to the seller. This lesson explains the clauses that matter and how to plan for the day no buyer appears. We do not give day counts or form numbers, because they come from the contract form you actually use. Read yours line by line, and have a Colorado lawyer review it.
The parts of a purchase contract
A purchase contract is a written agreement in which the seller agrees to sell and the buyer agrees to buy a described house at a stated price. Look for these parts:
- Parties and property: who is buying, who is selling, and which house.
- Price and terms: the amount, and whether the buyer pays in cash.
- Earnest money: a deposit.
- Deadlines: dates by which things must happen.
- Closing date: when the deed is signed and the money moves.
- Default terms: what happens if someone breaks the deal.
- Assignment clause: whether, and how, the buyer may pass the contract to someone else.
The Colorado real estate commission promulgates (publishes for use) some standard forms; the law mentions, for example, a short sale addendum form (C.R.S. 6-1-1103(2)(h)). Which form fits your deal, and what its blanks and deadlines say, is a lawyer question.
Assignment clauses and “and/or assigns”
A contract may say the buyer is “Jordan Lee and/or assigns” (a made-up name). The words “and/or assigns” signal that the named buyer may hand the contract to another person. An assignee is the person who receives it. The person handing it over is the assignor.
Three possibilities exist: the contract allows assignment, the contract bans it, or the contract says nothing. If it says nothing, do not assume you may assign. Whether and how you may assign then turns on the contract's words and general contract law, which is a lawyer question. Also ask whether the seller must consent, and whether you remain responsible after you assign. Unless the seller releases you in writing, you may still be on the hook if the assignee does not close. That is why a release is often negotiated.
Another point: “and/or assigns” does not tell the seller that you plan to resell for a profit. A seller who asks should get an honest answer (lesson 4). The law makes failing to disclose known material information, when that failure is intended to induce a deal, a deceptive trade practice (C.R.S. 6-1-105(1)(u)).
Earnest money
Earnest money is a deposit that shows the buyer is serious. It is usually held by a neutral third party, such as a title company or a licensed broker's trust account, and not by you. The law treats money held for others as serious business: licensed brokers can be disciplined for failing to account for it, mixing it with their own funds, or failing to keep it in a trust account (C.R.S. 12-10-217(1)(h) and (i)). For a beginner the lesson is simple: know who holds the deposit, under what rules, and what must happen for it to come back.
If you break the contract, the seller may be entitled to keep the deposit and may claim more, depending on the default clause. Read that clause first.
Due diligence, inspection and other deadlines
A due-diligence period (or inspection period) is a window in which the buyer may look at the house, the title and the paperwork, and, if the contract gives that right, end the deal and get the deposit back. After it closes, ending the deal usually costs you. A contingency is a condition that must be met for the deal to go forward, such as a satisfactory inspection.
This window is your marketing window. You must find an end buyer, sign the assignment and have the buyer's deposit in place before your own exit right ends. Find the exact dates in your own contract and put them on a calendar. This course gives no standard day count, because a made-up number could be wrong for your form.
Use an inspection right honestly. If you plan to cancel because you have no buyer, say that is the reason, or use a right the contract truly gives you. Inventing a defect to get out can mislead the seller, and the law lists “knowingly or recklessly” engaging in “any unfair, unconscionable, deceptive, deliberately misleading, false, or fraudulent act or practice” as a deceptive trade practice (C.R.S. 6-1-105(1)(rrr)).
When you cannot find a buyer
- End the deal in time using a right the contract gives you, before the deadline.
- Ask the seller for more time, and get the new date in a written change signed by both sides.
- Offer the deal at a lower fee. A smaller fee beats a lost deposit.
- Close yourself with your own funds, a partner or a lender, if you can still afford the house.
- Do nothing. This is the worst choice. You may lose the deposit and face a claim for more.
Example with real numbers
Made-up numbers. Priya signs a contract at $200,000 with $2,000 earnest money. Her marketing (photos and ads) costs $500. Her price to an end buyer would be $214,000.
| Outcome | Math | Result for Priya |
|---|---|---|
| Buyer found in time at $214,000 | $214,000 minus $200,000 = $14,000 fee; minus $500 marketing | +$13,500 |
| No buyer, Priya ends the deal in time | Deposit of $2,000 comes back; marketing $500 is gone | -$500 |
| No buyer, deadline missed, Priya cannot close | Seller may keep the $2,000, plus $500 marketing | -$2,500 or worse |
The difference between the second and third rows is a calendar. So set a personal deadline well before the contract's deadline, and decide in advance what you will do if no offer comes.
This is also why pricing is built from the specific house. A fee of $14,000 only works if an investor's own numbers for that house (its beds, size, condition and neighborhood) leave room for it.
General education only, not legal advice. Have a Colorado real estate lawyer read your contract and your assignment paper before you sign.
Law cited
- C.R.S. 12-10-201
- C.R.S. 12-10-217
- C.R.S. 6-1-105
- C.R.S. 6-1-1103
Key terms
- Purchase contract
- A written agreement in which the seller agrees to sell and the buyer agrees to buy a described house at a stated price.
- Earnest money
- A deposit that shows the buyer is serious, held by a neutral third party until closing or until the contract says who gets it.
- Assignee
- The person who receives (takes over) a contract in an assignment.
- Assignor
- The person who hands over their rights under a contract in an assignment.
- And/or assigns
- Words after the buyer's name signaling that the buyer may pass the contract to another person.
- Due-diligence period
- A window in which the buyer may investigate the house, title and paperwork and, if the contract allows, end the deal and recover the deposit.
- Contingency
- A condition that must be met for the deal to go forward, such as a satisfactory inspection.
- Default
- Breaking the contract, for example by failing to close; the contract says what follows.
- Release
- A signed statement that ends a person's responsibility under the contract.
- Promulgate
- To publish officially for use, as the real estate commission does with some standard forms.
- Deceptive trade practice
- A misleading business act that Colorado law lists as unlawful, including failing to disclose known material information to induce a deal.
Flashcards
Until you assign, who is bound to the seller?
You, as the buyer on the contract.
What does 'and/or assigns' signal?
That the named buyer may pass the contract to another person.
If the contract is silent about assignment, may you assume you can assign?
No. Read the words and ask a lawyer.
Who should hold the earnest money?
A neutral third party such as a title company or a licensed broker's trust account.
What is the due-diligence period for a wholesaler?
Your marketing window and exit window, so you must find a buyer before it ends.
Why might you still be liable after assigning?
Unless the seller releases you in writing, you may remain responsible if the assignee does not close.
Where do exact day counts come from?
From the contract form you actually use, not from a general course.
Is inventing an inspection defect to cancel a safe exit?
No. It can mislead the seller and can be a deceptive trade practice (C.R.S. 6-1-105(1)(rrr)).
What is the worst plan when no buyer shows up?
Doing nothing and missing the deadline.
What should you set well before the contract deadline?
A personal deadline and a decision on what you will do if no buyer appears.
Quiz: 10 questions
Tap an answer. It shows right or wrong and opens the reason. Your score is saved in this browser and counts in the study app.
What is earnest money?
- A The fee paid to the wholesaler at closing
- B The seller's commission
- C A tax charged when a deed is recorded
- D A deposit that shows the buyer is serious, held by a neutral third party
Show answer and why
Answer: D. A deposit that shows the buyer is serious, held by a neutral third party
Earnest money is a good-faith deposit held until closing or until the contract says who gets it. The fee and the recording tax are different payments.
This lesson
A contract names the buyer as 'Jordan Lee and/or assigns.' What do the words 'and/or assigns' signal?
- A The seller must also sign the deed twice
- B The named buyer may pass the contract to another person
- C The deposit is refundable in all cases
- D The house is sold without an inspection
Show answer and why
Answer: B. The named buyer may pass the contract to another person
The phrase signals that assignment may be allowed. It says nothing about the deposit, the inspection or the deed.
This lesson
Which is NOT an honest way out when no buyer appears?
- A Ask the seller for a written extension
- B Use an exit right the contract truly gives you before the deadline
- C Invent a defect to cancel the contract
- D Ask a lawyer about options
Show answer and why
Answer: C. Invent a defect to cancel the contract
Inventing a defect misleads the seller and fits the law's description of a deliberately misleading or false practice. The other three are open and honest.
C.R.S. 6-1-105(1)(rrr)
Priya's deposit of $2,000 comes back because she ends the deal in time, but she spent $500 on marketing. What is her result?
- A -$500
- B -$2,000
- C -$2,500
- D +$500
Show answer and why
Answer: A. -$500
The deposit returns, so only the $500 of marketing is lost. -$2,500 assumes she also lost the deposit, which happens only if she misses the deadline.
This lesson (made-up numbers)
Priya's contract is $200,000, her buyer pays $214,000, and she spent $500 on marketing. What is her net?
- A $14,000
- B $13,500
- C $14,500
- D $15,000
Show answer and why
Answer: B. $13,500
$214,000 minus $200,000 = $14,000 fee, then minus $500 = $13,500. $14,000 forgets the marketing cost.
This lesson (made-up numbers)
A wholesaler misses the exit deadline, has no buyer and cannot close. What is the risk?
- A Nothing, because contracts expire on their own
- B The seller must refund the wholesaler's costs
- C The title company must buy the house
- D The wholesaler may lose the deposit and face a claim for more
Show answer and why
Answer: D. The wholesaler may lose the deposit and face a claim for more
Missing the deadline usually removes the no-cost exit, and the default clause governs what the seller may claim. Contracts do not simply expire.
This lesson
Why is it a good rule that someone other than you holds the earnest money?
- A It lets the wholesaler earn interest
- B Deposits are taxed less that way
- C Money held for others is treated seriously: brokers must keep it in a trust account and account for it
- D Sellers never trust wholesalers
Show answer and why
Answer: C. Money held for others is treated seriously: brokers must keep it in a trust account and account for it
The law treats mixing or failing to account for others' money as a ground for broker discipline. It is a safeguard, not a tax or interest question.
C.R.S. 12-10-217(1)(h), (i)
A contract says nothing about assigning. What is the right approach?
- A Do not assume you may assign; read the words and ask a lawyer
- B Assume assignment is allowed because nothing bans it
- C Assume it is banned and give up
- D Assign anyway and fix problems later
Show answer and why
Answer: A. Do not assume you may assign; read the words and ask a lawyer
Silence leaves the question to the contract's words and general contract law. Assuming either way can cost you.
This lesson
A seller asks Marcus if he plans to resell the contract. He does. What does Colorado law say about hiding known material information to induce a deal?
- A It is encouraged to protect the profit
- B It is allowed if the seller does not ask twice
- C It is allowed if the price is under $250,000
- D Failing to disclose known material information to induce a transaction can be a deceptive trade practice
Show answer and why
Answer: D. Failing to disclose known material information to induce a transaction can be a deceptive trade practice
Section 6-1-105(1)(u) lists that failure as a deceptive trade practice when it is intended to induce the transaction. There is no price floor in the text.
C.R.S. 6-1-105(1)(u)
Where should you get the exact number of days in your inspection period?
- A From a general course like this one
- B From the contract form you actually use
- C From a friend's earlier deal
- D From the documentary fee statute
Show answer and why
Answer: B. From the contract form you actually use
Day counts come from the contract in front of you, so this course gives none. A friend's deal may use a different form.
This lesson
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