My First Time Putting a Deal Together With a Wholesaler

[Bree Miller]

Hello BP world. I have been a real estate agent for the last three years in Kansas City! I've recently found a off market deal from a wholesaler for one of my clients! The deal is a win win for both parties. But what I'm having a little bit of trouble with is how to structure the contracts for the deal. I was hoping some real estate agents in the BP universe could give me some guidance! 

[Bruce Lynn]

1.  So just be aware this can cause you a lot of pain and maybe money.  Run EVERYTHING by your broker.

2. My local investor friendly title company told me a couple of months ago only 30% of wholesale contracts that get turned into title actually close.   I was surprised by that #, but when you think about it, that's probably true there and almost anywhere.   Why is that....all kinds of reasons.  I suspect plenty of title issues....that's why they're not selling with a realtor...either known or unknown....affidavits of heirship, or non-notarized deeds filed, or quit claim deeds, or bought on contract for deed with no lien releases, brother trying to sell house for someone in jail, ex wife trying to sell ex husbands home he "gave" to her, only her name not on title...and on and on and on.  Plenty of new or amateur wholesalers don't research or understand title issues and some are pretty darn hard to resolve or take a long long time to resolve and money that someone doesn't want to spend.

3. Just saw a demand letter from a lawyer posted on wholesalers Linkedin page (I'm sure they don't know it yet) telling them to remove "memo" from chain of title.  Very common with wholesalers in my area to file "memo" that cloud title, and then disappear or become non-responsive.

4.  So you need to explain all the risks to the buyer to stay out of trouble and probably get them to sign off on all that.   You could loose all your money.  It may not close on time or ever.  We could have plenty of issues along the way.

5.  Are you dealing with a known, big, successful, long term wholesaler?  or someone who went to a seminar last weekend and doesn't really understand any of what they're doing?

6.  Think about how you will get paid and who is going to pay you.   Are you using a one time showing agreement and commission agreement with the wholesaler?  or is the buyer going to pay your fee?  When are they going to pay that?  Up front or at closing?   What happens if you do a ton of work and it drags on and on and never closes?  Did you just work for free?

7.  Are you going to have a chance to talk to the end seller?   Too often things weren't explained to them or promises made that aren't in the contract.  Good example is when do they need to move out.  Do they need to be out at closing?  Do they understand that?   If they get a leaseback is there significant money held back in YOUR buyer's hands to encourage them to move and leave it clean?  Too often wholesalers tell you it is all taken care of, when it really isn't.  Is the house vacant or occupied?   Have you seen inside?   Does the wholesaler have a seller's disclosure to give to your buyer?  Is one required?  How about LBP?

8.  Is your buyer experienced investor who understands all the potential pitfalls or are they a 1st time buyer who is thinking they're moving in?

9. Is your buyer getting a loan?  Is the house in a condition to get a loan?  Does your buyer plan to do an inspection?   How will your buyer's inspector and appraiser get access to the property?  For most wholesale contracts any money paid up front is typically non-refundable, does your buyer understand this and can they afford that if things fall apart.   is the wholesaler using your typical KC contract or do they have their own?  If they have their own, and you and your broker are not familiar with it, is your client going to have an attorney review with them?

10.  Does your buyer understand that there is probably ZERO recourse with a wholesaler if things go wrong?   90% of the wholesalers I know have ZERO money.   That's why they're wholesaling.  That's not all, but most.   There are good and legit wholesalers, but they are few and far between.

With all this said....you have to think if you really want to do this.  When things go wrong, who does your buyer look to for fixes?  This can be a huge time suck for you.  Are you willing to take that on?  Even if you have the buyer sign all kinds of disclosures, but things go wrong, how do you look in their eyes, if they loose a lot of money on the deal?  People are nice and friendly until they loose money and feel like they got hammered, then they sue....and then you have to spend even more time and money and still don't get paid.

One thing you might consider is just pairing them up and giving them a few tips.   Don't represent the buyer, but be a casual resource.   If they're going to fix and flip, list it on the back end when they're done, but don't try to broker this on the buy side.  If you just put them together on the buy side and it doesn't work out, they may understand they don't want to buy wholesale deals, and just come to your for on market deals.   Of course if you do it, you may learn a ton and will be more knowledgeable and experienced and have a great story to tell.'

Good luck and best wishes.