How does an investor "Buy a Contract" from a wholesaler

Question

My partner and I have an opportunity to purchase a contract from a wholesaler.  He says that he has a contract and he wants 150,000 for it.  We have done the comps and think that we can repair it and sell it for about 210 to 220,000.   But, I don't really understand exactly HOW I buy his contract....

I assume that he made an offer on the house at say, 120 to 130, and has a long closing of 45 to 60 days.  And, I understand the idea of him selling it off for a profit without really doing anything, but, I have not actually SEEN the contract.  When doing a deal like this, is it customary for an investor like my partner and I to ask to see the contract?  I certainly wouldn't give anyone $150,000 without knowing that there is a valid contract on the property for me to take over.

Please help me figuring out how this operation really works!

Thanks,

Jeff Schwarz · Answer

I have some ocean front property in Arizona, would you buy it sight unseen?  Of course you want to see the contract, take it to your real estate attorney to get his/her opinion.  In fact let him/her handle the transaction.  your talking about a lot of money as well as a legal contract that commits you to something.

Carson Wilcox · Answer

They go into "contract" with the seller.  The language on the doc they sign allows them to assign the contract to a third party usually.  OR they will do some sort of double close, depending on the rules in your locale.  They are basically playing middle man.

But remember, it is ALL negotiable.  These guys always pad the hell out of that sale price.  If they want 150, and havent put dollar one into it, just found a house, ask them straight up what they are in contract for and what their usual fee is.  If they hem and haw they are full of it.  I was working one in Ca.  She started like $60k over... she had been watching too many youtube guru videos.   I finally got her to admit what she was in contract for and we were talking about a $5k fee, then the owner got sick of her and her days ended... deal poof.

You are going to see that number at the end... dont let it surprise/anger you.  Wholesaling is a good tool for the flipper... but it is up to you to craft a fair deal...

Brian Pulaski · Answer

@Victor Boyd the same way a FSBO would go under contract with a buyer not represented by an agent. They simply create a contract (usually standard although it varies by area) and sign it. From what I have seen some wholesalers let the seller know they might assign the deal to someone else. Other let the seller believe they are the actual buyer, and the seller has no idea that the wholesaler is selling to someone else. I don't know what isn't legal or not, however this is a very hot topic on the forums!

Victor Boyd · Answer

So, if they are not licensed, or, legit, how do they get a contract in the first place?  In the situations that you all are warning about, does the wholesaler somehow contact the property owner and convince him to sign a contract without the homeowner knowing that the wholesaler is unlicensed?  If so, what does that do to the legality of the contract?

Brian Pulaski · Answer

@Victor Boyd my guess is this person is not licensed and doesn't work for any agency, at least every Wholesaler I am on a list for is not licensed.

Victor Boyd · Answer

I assume that once I see the contract, I will see the agents name and brokerage he is with, then, can check his credentials, no?

John Thedford · Answer

The very careful dealing with unlicensed Brokers that skirt laws. Never pay those types of people a non-refundable fee. Non-refundable fees are not the norm in the real estate industry. Several of these people are not licensed because of their criminal records.

Aaron Mazzrillo · Answer

You should definitely see the contract. If you are OK with it, have escrow type up an assignment agreement with the fee stated. You'll be obligated to perform per the contract once you sign that assignment.