Assignment

Key Takeaways

• In an assignment the assignor hands over contract rights to the assignee, and the assignor normally stays liable to the other original party.
• Novation substitutes a brand new contract and releases the original party, while an assignment releases no one unless the other party agrees in writing.
• Washington charges no real estate excise tax on the assignment of a buyer's interest in an earnest money agreement when title does not change hands, under WAC 458-61A-104.
• Assigning a purchaser's interest in a real estate contract for consideration is taxable, and the tax is measured on the consideration paid plus any unpaid principal balance.

What It Means

An assignment moves one party's rights and benefits under an existing contract to someone else. The party handing over the rights is the assignor, and the party receiving them is the assignee. The underlying contract does not disappear and it is not rewritten. The same deal continues, with a new party standing in the assignor's shoes to collect the benefits.

The part students miss is that an assignment transfers rights, not responsibility. Unless the other original party agrees in writing to let the assignor go, the assignor stays liable if the assignee fails to perform. That is the dividing line between assignment and novation. A novation replaces the old contract with a new one and releases the original party. An assignment leaves the original party on the hook in the background.

In real estate, assignments show up on purchase contracts, leases, and seller-financed contracts. Many agreements limit or forbid assignment without written consent, so the first step is always to read the assignment clause in the Purchase And Sale Agreement or Lease Agreement itself.

How It Works in Washington

Washington treats an assignment as a transfer of the buyer's contract position, not as a transfer of title. Title still moves by deed at closing, because RCW 64.04.010 requires that every conveyance of real estate, or any interest in it, be by deed. So when a buyer assigns a purchase contract, the seller still deeds the property to whoever closes.

The tax treatment then splits in two, and the Department of Revenue rule is WAC 458-61A-104. Under subsection (1)(a), real estate excise tax does not apply to an assignment of a purchaser's interest in an earnest money agreement if neither the agreement nor its assignment results in a change of title to or ownership of the real property. Under subsection (1)(b), the tax does apply when the purchaser of real property under a real estate contract assigns the purchaser's interest in that contract for consideration, and the tax is based on all consideration paid or contracted to be paid for the assignment, including any unpaid principal balance due on the assigned contract. Subsection (2) adds that the tax does not apply when the seller under a real estate contract assigns an interest in the contract to a third party.

Example

Marisol Reyes signs a purchase and sale agreement on a Spokane duplex for $410,000 with $5,000 in earnest money. Before closing she decides not to buy it herself and assigns her buyer's position to Trent Okafor for a $12,000 assignment fee. Trent closes on the original $410,000 terms, and the seller deeds the duplex straight to Trent.

Because Marisol assigned an earnest money agreement and title never passed to her, no real estate excise tax is owed on the assignment itself under WAC 458-61A-104(1)(a). Excise tax is still owed on the $410,000 sale at closing. And because the seller never signed anything releasing Marisol, she stays liable on the original contract. If Trent had walked away, the seller could still have pursued Marisol for the Breach.

Common Mistakes and Exam Traps

• Assignment transfers rights but does not automatically release the assignor. Only a novation, agreed to by all parties, releases the original party.
• The assignor gives up the contract rights and the assignee receives them. Exam items swap those two labels on purpose.
• An assignment does not create a new contract. The original contract stays in force with a new party collecting the benefits.
• Not every assignment triggers Washington excise tax. Assigning an earnest money agreement with no change in title is untaxed, while assigning a purchaser's interest in a real estate contract for consideration is taxed.