proper contract assignment technique

[Jason K.]

Good morning all,

I'm a Texas Realtor that specializes in investment properties, primarily deals from the MLS, and bank owned properties.

I've been browsing various topics and posts for a few days, but haven't found answers to some of my most important concerns.

I'm trying to expand my business to homes that aren't being advertised or listed and I have recently been driving different neighborhoods in the Houston area that are prime targets for my investors, just looking for potential deals and motivated sellers.

I'm a hard worker and very passionate about my career, but I want to get EXPERT advice on if this would be a waste of time for me, driving these neighborhoods 1-2 times a week (4 hours a week) looking for deals for my investors, and even myself.

How often should I expect to locate a deal where the seller is open minded or desperate to sell his home below market value. I'm confident in my negotiating skills I just want to make sure I manage my time efficiently. Any advice here is appreciated.

Also, being a Realtor, I'm a bit confused on how I would structure my offer with the homeowner, not knowing the financing of my end buyer...How would I fill in this section of the offer? In legalese, how do I cover my a$$ in the contract to make sure I'm not liable, and can walk away in an event my end buyer does not come through?

I've read how to assign the contract -- where I would write 'my name' as the buyer at the top, then "assigns to ____" but if someone could provide me with exact verbeage here I would greatly appreciate it.

Also, what is good fee to use in Texas? I've heard where some will take earnest money up front and also collect their fee at closing. What is the most popular way to go about this if any, what do you recommend as a good fee? I don't want to sell my self short here, and don't want to be to steep.

Thanks in advance for any of you who wish to participate. It all sounds a bit needy, but after I've conquered these concerns, I'm on my way. I look forward to any help I can get. If you have any questions about the Houston market and need my expertise, please don't hesitate, I'd love to help you as well. Thanks!

-Jason-

[Jaremy Moritz]

Jason,

There are different ways to get to the same end result, so don't feel you have to use all of them. If you find one way that you're comfortable with, you can stick with that tactic. There's no right or wrong way, in my opinion.

Buying a Property
If you want to use an Option Agreement to tie up a property until you find a buyer, the process is simple. Just get the seller to sign the one page form giving you exclusive rights to market the property to your buyers at a specified price (your purchase price, not the price you're going to try and sell it for). Most option agreements have a line regarding "Seller has the right to market the property themselves, and they have the right to cancel this agreement at any time." I remove this from the document before I have the seller sign it. If I'm spending my time and resources to find a buyer, I don't want the deal cut out from under me by someone else. Once the seller signs the option, start marketing it to your buyers.

After you've signed the Option Agreement and you have a buyer for the property, or if you aren't using an Option Agreement but you've reached a deal with the seller, it's time to get the seller to sign a TREC contract. Here's the key items you need to have on the contract, in my opinion:
Buyer: Your name and/or assigns
Price: write it as cash (I'll explain more in a minute)
Special Provisions: Escape clauses, such as "Seller understands that buyer intends to assign this contract to a qualified end buyer. Said end buyer may purchase property with either cash or private financing, but not conventional financing." You can also use "This contract is contingent upon buyer's approval of the survey and final walk through evalutation to be completed prior to closing." Another one I use is "This contract is contingent upon buyer successfully assigning this contract to a qualified end buyer."
Also, since you are licensed, put "Seller understands that buyer is a licensed realtor but is acting as a principal in this transaction." That should cover you - some of the investors I know are also realtors and that's what they use. The rest of the contract is basic stuff.

Once you've found a buyer for your property, you're ready for the next step.

Selling the Property
When you have a buyer for your deal, you'll either assign the rights to your purchase contract to them or fill out a TREC contract with you as the seller and them as the buyer. When you should use each method is subject to your own comfort level, not only with the buyer but with the seller, too. When you assign your contract, the buyer and seller will both be listed on the HUD and you will only be listed as a line item. In most cases, the buyer and seller will both see what you are making on the deal. If your profit is small, and if you have a good rapport with the buyer and seller, you can sometimes get away with assigning contracts for BIG profit. (Big for us in Houston is $10K or higher - other markets around the country might think this is small, but based on our housing market, $10K is usually much higher than what a seller would pay for a Realtor to sell their property) If you think the seller would have an issue with the size of your profit, or if you've never dealt with your buyer before, you might want to double close so neither buyer sees your profit on the HUD (two transactions, thus two HUD statements). Either way, here's what you do on each:

Assignment: the main points on the assignment are the fee and the deposit. The price you put on the assignment is the amount of YOUR profit, not the total amount the buyer is paying. I see this done incorrectly many times. When you assign a contract, you sell your rights to the original contract for the amount of money specified on the assignment. If you choose to have your buyer pay you a nonrefundable deposit (basically an option fee), most assignment forms have room for this at the bottom of the sheet. I usually ask for at least $1K if I've never dealt with the buyer before. Once you've done deals with a buyer, it's up to you whether or not you want them to cough up a deposit. The rest of the assignment fee is self explanatory, I think.

If you double close, put your name as the seller and the buyer's name as the buyer. I personally do not allow the buyer to put and/or assigns. If they aren't the ones buying it, they won't be the one I contract with (I'll cover that in a minute). The price should be the total price that the buyer is paying (remember, you are double closing because you don't want either the buyer, seller, or both to know your profit). In special provisions, you can put "This contract is contingent upon successful acquisition of property by seller prior to the closing of this transaction." or "Contract is contingent upon seller providing clear title to buyer". The termination option is basically the same on the contract as what you can use on an assignment. Same rules apply - if they close, the deposit amount is credited towards the purchase price. If they terminate the deal, they lose the deposit. I never require earnest money on a sale contract as it's too easy for the buyer to get back. For most investors, they won't risk the $1000 if they aren't sure they'll close. The rest of the contract is pretty standard.

One more thing: if you have a wholesaler bring you a buyer for your wholesale deal, the process can get a little more detailed. There are ways to get the deals done with multiple wholesalers getting paid. Don't worry about that for now, though. No sense crossing that bridge until you come to it. I just mentioned it in case you had already thought of that issue...

As far as your question about the broker's commission, you'll have to discuss that with your broker. I wouldn't think you would have to if you are a principal in the transaction but you would if you do a "Net Listing". One of my good friends is a realtor and he doesn't have to pay the broker on his wholesale deals, but that might just be the agreement made between them. I'm not a realtor so I can't answer that for sure.

Hope all this helps. Sorry for such a long post.