When to Pay a Wholesaler - What is Reasonable and Customary

[Lenna Groudan]

Hi  guys,

    We are working a deal and it is our first time we have tried to close a deal with a wholesaler.  We like the deal and his finders fee is reasonable so no problem with the numbers.

My question is around when does money change hands.   

My understanding on how to do this - and how our mentors suggest we do it - is to have the wholesaler fee to be captured on the HUD at closing. That way everything is documented. I know the risk to a Wholesaler is that since no money has changed hands yet, at the last minute we could back-out of the deal and he loses his contract. This is not our intent and we are only looking for 2-3 working days to run an inspector thru the house and review the loan documents (the deal is a subject to deal...).

The gentleman we are working with wants money "up front" to secure the deal while we do our due diligence.   So - when you do a deal with a normal purchase contract and a title company, you can arrange option fees, and escrow at title companies, etc..   However, in this case, we are probably going to get asked to just cut a check.   We are meeting him tonight to see the house and if we decide to take on the contract, I am trying to decide how to address his request.

What is reasonable and customary?  I don't want to screw the guy but I also don't want to cut a check, find an issue with the house and then be unable to recover our money.

Thanks in advance for your advice...

Jeff and Lenna