Property Flipping & Contract Assignments: Valuation and Sizing Rules
Rule
Lendency applies strict valuation guardrails to transactions involving contract assignments, property flips, or simultaneous closings to ensure loan sizing is based on stable asset values. For contract assignments within the last 12 months, recent flips (seller-owned for less than 6 months), and simultaneous closings, the property's eligible cost basis for the LTV calculation is capped at the lowest of the "As-Is" appraised value, the current contract price, or 120% of the original purchase price/prior sales price.
Lendency Insight
Wholesale deals, contract assignments, and rapid flips are excellent ways to source deeply discounted investment properties. However, because these transactions involve rapid price jumps, secondary market guidelines require lenders to ensure the value hasn't been artificially inflated. By capping the loan's cost basis at 120% of the original contract price or the seller's recent purchase price, we mitigate the risk of "pushed" values. For investors, this means that if a wholesaler assigns a contract with a massive markup, your loan amount will be sized off the capped cost basis rather than the inflated purchase price, requiring more cash-in-deal at closing.
Common Scenarios & FAQs
What documentation is required for a wholesale assignment? You must provide a fully executed, uninterrupted chain of assignment contracts that links the current deed-holder directly to the proposed seller and ultimately to you as the buyer.
Can I pay the assignment fee to my own wholesale company? No. "Affiliate Fees"—which are assignment fees paid to any entity owned, managed, or controlled by the borrower or guarantor—are strictly excluded from the cost basis calculation.
What if the seller bought the property 3 months ago and renovated it? If the current seller has owned the property for less than 6 months, it is classified as a short-term flip. The valuation will be restricted to the lowest of the appraisal, the new contract price, or 120% of what the seller originally paid for it, regardless of the rehab work completed.
How are simultaneous closings handled? Simultaneous closings are treated with the exact same restrictions as contract assignments. The maximum allowable valuation used to size your loan is strictly capped at 120% of the lowest sales price across all transactions involving that property within the last 6 months.
Key Definitions
Assignment of Contract: A real estate transaction where the original buyer (the wholesaler) transfers their rights and obligations under a purchase contract to a new buyer (the investor) before closing.
Property Flip: A property that is bought and quickly resold for a profit, defined under these guidelines as a property owned by the seller for less than 6 months.
Simultaneous Closing: A transaction where two separate transfers of title on the same property occur back-to-back on the same day.