(Drafted by ERC’s Law and Government Relations Committee)
Prepared by Worldwide ERC® Tax Counsel, Peter K. Scott
Peter K. Scott Associates
November 2000
Assigned Sale Option
An assigned sale transaction differs from an amended value transaction in certain material respects, although the procedures may appear to be similar.
In an assigned sale transaction, EMPLOYEE typically signs the offer from POTENTIAL BUYER or enters into an agreement with POTENTIAL BUYER. In such event, EMPLOYEE will sign all of the documents PURCHASER requires, which are similar to those used in appraised value or amended value transactions, and will also execute an assignment of the agreement with POTENTIAL BUYER to PURCHASER.
In general, there are two variations for when EMPLOYEE has the right to receive equity from PURCHASER in an assigned sale. In the first variation, EMPLOYEE has the right to receive equity based on the price in POTENTIAL BUYER’s offer (This involves making any necessary adjustments to reflect the differences between the offer from POTENTIAL BUYER and the offer from PURCHASER so that the two offers may be compared on an all-cash basis. This comparison of terms is for the benefit of the employer and assures the reasonableness of the marketplace offers. For example, if EMPLOYEE offered to pay buyer’s points in exchange for a higher purchase offer, then an adjustment would be made to make the offers comparable on an all-cash basis), subject only to fulfillment of all of the contingencies contained in the offer from that POTENTIAL BUYER. If the contingencies are not removed, the transaction between EMPLOYEE and PURCHASER reverts to a sale at the appraised value.
In the second variation, EMPLOYEE has the right to receive initial equity based on the appraised value; he/she has the right to receive additional equity when the sale to POTENTIAL BUYER is closed.
In the assigned sale transaction, PURCHASER ordinarily does not enter into a new Listing Agreement with the real estate broker.