Seller put me in a tight spot, what should I do?

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Seller put me in a tight spot, what should I do?

Shaquan Whitaker
Saint Louis, MO · Member since 2016 · 14 posts · 2 votes
So I'm a wholesaler in the Springfield, MO area. I was driving for dollars and came across several FSBO's. One seller in particular (elderly lady, getting too old and was a landlord) has a property for sale that is in great shape. She told me that once she signs the papers, she wants the deal to be done. She doesn't want me to list it, or sale it to a third party, she just wants it to be where she sells and I buy and that's the end of it. As a wholesaler, you see where this can be a problem for me. I don't want to lie to her, or go behind her back. Any suggestions?
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Andrew Newlon
Flipper/Rehabber · Springfield, MO · Member since 2014 · 114 posts · 67 votes
9y

Hey @Shaquan Whitaker, you are facing a common moral dilemma with wholesaling. The difference is the seller has already made it clear she only wants to work directly with the end buyer, which you must understand and respect. That does not mean you don't have a deal. Here are a few options you can take:

  • Contact a lender (bank, hard, or private) to borrow the funds and buy yourself. You can then choose to turn around and sell it, fix and sell, or rent it out. @Casey Mericle is a great person to start with.
  • Run the deal pass your serious buyers. Tell them the numbers, the shape of the house, and the situation. Explain to them how much you want to make (be reasonable since you do not have it under contract to buy yourself). If they like the deal, bring them through the house with you. 
  • Find a partner who can close themselves and run the deal by them. Offer to partner up with the same exit plans as the first option.
  • Offer to pay a higher purchase price if she will give you a lease option. Once again, this will give you many exit plans as long as the option gives you the right to sell the house.

Ultimately, make sure it is a good deal not just a motivated seller. You don't want to spend a lot of time and energy if the deal is being forced. Feel free to reach out if I can help; I am in Springfield as well.

Good luck!

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  • Jamie Engledow
    Boca Raton, FL · Member since 2015 · 249 posts · 52 votes
    9y

    She seems pretty clear.  Does this property make sense for you to buy and hold for a year and then resale?

    3Reply
  • Shaquan Whitaker
    OP
    Saint Louis, MO · Member since 2016 · 14 posts · 2 votes
    9y
    Jamie Engledow Yes it does make sense, but I am not a buy and hold investor. If I were, then I'd just use it as a rental. I haven't told her that I am a wholesaler, but that was what she came to me with.
    0Reply
  • Brandon Battle
    Real Estate Agent · Buena Park, CA · Member since 2016 · 743 posts · 424 votes
    9y
    Find a hard money lender for transactional funding.Do all of the due diligence by taking pictures,getting it professionally inspected by a contractor,figuring out the after repair value,and taking it all to a hard money lender for approval of funding her price.Complete the purchase entirely and then resell it for a profit to a real flipper before the next mortgage payment is due.
    1Reply
  • Natalie Schanne
    Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
    9y
    Shaquan Whitaker - sounds like she wants whatever deal you agree to, to happen... no ifs, ands or buts. Like, if I agree to sell to you for $50k, you're not going to reneg on me in a few weeks (because you didn't get another buyer fast enough). So, you prepare 100% to close on the deal and buy it when you said you would for the price you said you would. Meanwhile you find the next buyer or you partner with a flipper. Describe any assignment to a buyer as a funding partner or co investor, which is true.
    2Reply
  • Andrew Newlon
    Flipper/Rehabber · Springfield, MO · Member since 2014 · 114 posts · 67 votes
    9y

    Hey @Shaquan Whitaker, you are facing a common moral dilemma with wholesaling. The difference is the seller has already made it clear she only wants to work directly with the end buyer, which you must understand and respect. That does not mean you don't have a deal. Here are a few options you can take:

    • Contact a lender (bank, hard, or private) to borrow the funds and buy yourself. You can then choose to turn around and sell it, fix and sell, or rent it out. @Casey Mericle is a great person to start with.
    • Run the deal pass your serious buyers. Tell them the numbers, the shape of the house, and the situation. Explain to them how much you want to make (be reasonable since you do not have it under contract to buy yourself). If they like the deal, bring them through the house with you. 
    • Find a partner who can close themselves and run the deal by them. Offer to partner up with the same exit plans as the first option.
    • Offer to pay a higher purchase price if she will give you a lease option. Once again, this will give you many exit plans as long as the option gives you the right to sell the house.

    Ultimately, make sure it is a good deal not just a motivated seller. You don't want to spend a lot of time and energy if the deal is being forced. Feel free to reach out if I can help; I am in Springfield as well.

    Good luck!

    4Reply
  • Casey Mericle
    Investor · Springfield, MO · Member since 2012 · 320 posts · 115 votes
    9y

    What a great reply @Andrew Newlon.  All of those are excellent!

    1Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    9y

    I will walk away and her requirement does not meet your goal.

    0Reply
  • Shaquan Whitaker
    OP
    Saint Louis, MO · Member since 2016 · 14 posts · 2 votes
    9y
    All of you, thank you for your replies. You've all help me clear a lot of things up. Andrew Newlon Casey Mericle I will be PMing you both, if that is okay.
    0Reply
  • Andrew Newlon
    Flipper/Rehabber · Springfield, MO · Member since 2014 · 114 posts · 67 votes
    9y

    Absolutely @Shaquan Whitaker, please do!

    0Reply
  • Jake Thomas
    Residential Real Estate Agent · Grand Rapids, MI · Member since 2013 · 803 posts · 689 votes
    9y

    As a wholesaler you need to be prepared to close on any property you get under contract. I have wholesaled but I am able to close if I can't find a buyer. This lady has likely dealt with wholesalers before since she told you she doesn't want to deal with a third party etc. If it were me I would just find a buyer before I get it under contract and connect the two so she is happy. The end goal is to solve her problem and if the numbers make sense it shouldn't be difficult to do. You can figure out compensation later.

    0Reply
  • Shari Peterson
    Lender · St. Louis, MO · Member since 2009 · 348 posts · 164 votes
    9y

    @Shaquan Whitaker, I see we are both from the St. Louis area, and my daughters both went to college in Springfield, MO. I think the most important thing is that you can deliver on your intent -- to close with this seller. She is elderly and counting on you, so you have a moral directive. If I were you I would arrange for both Transactional Funding as well as a Hard Money loan in case you don't find a C buyer in time for the planned closing date. I would be transparent to both the Transactional Funder as well as the Hard Money lender so that each knows exactly what is going on. To not waste their time, do everything you can to have your C buyer use for funding the Hard Money lender you are considering. You should have a clear idea within a week or so of closing to give the lenders sufficient time to act. Note: you may have to pay for valuation by way of BPO or Appraisal that is often required by the Hard Money lender. Whatever you do, don't leave this hanging by not paying these costs in the event you go with Transactional Funding.

    2Reply
  • Jason V.
    Investor · Rochester, NY · Member since 2016 · 477 posts · 426 votes
    9y

    @Shaquan Whitaker Welcome to BP! Looks like you've got a lot of motivation, and that's a great thing! 

    One thing that might not be so great: your seller did not, in any way, shape, or form, "put you in a tight spot." She simply dictated the terms in which she was willing to sell to you - i.e. that she expected you to be the party closing on the property if you were the one making the offer to buy the property. I applaud you for not wanting to be dishonest or mislead your potential seller, because that is exactly what most "wholesalers" would do, and (in many investors minds) seems to make up the majority of the business. 

    When you have a couple of minutes, take a look through the FAQ thread here on BP that discusses if wholesaling is actually legal, and the steps people can take to avoid legal trouble while doing this type of business:

    Is Wholesaling Legal?

    Below is a copy and paste of the most relevant post from the thread, in my mind. (Hat tip to @Darrin Carey)

    IS WHOLESALING LEGAL?

    I'm not going to get too far down into the weeds here. As you know, with any post there are a lot of "What ifs", ways for people to misinterpret, and look for a way to weasel around what is said.

    First, people must stop equating "Assigning the Contract" as everything wholesaling. Assigning is a useful tool, but only one of several ways to wholesale a property. I understand people's attraction, as it's always promoted as a way to “invest” with little or no money, and make a nice chunk of change doing it.

    The following applies specifically to unlicensed people in Ohio. Most, if not all states are probably very similar.

    WHOLESALING BY CONTRACT ASSIGNMENT

    The first two are absolutely absolute (redundancy intended). Direct from the Ohio Revised Code and the Division of Real Estate attorneys. There is NO wiggle room.

    • Assigning a contract is perfectly legal. However, what people are doing to get from contract to assignment is frequently not. Driving to the Beach is legal. Driving 90 miles an hour to get there is not. Assigning a contract simply takes a few sentences to accomplish. Of course, a specific contract can prohibit assignment, but the law clearly allows it.
    • You cannot advertise a property for sale unless you legally own it. Having it under contract is NOT the same as owning it. And for the weasels, "Equitable Interest" does NOT give you ownership and allow you to advertise the property for sale. You must have legal ownership. There are still questions on precisely where the line for "advertising" is drawn. The Division would not take a solid position on where the line was if you were just advertising “The Contract” for the property.

    The next one should be absolute, but there may be a loophole somewhere.

    • Do not put a property under contract unless you are ready, willing, and able to close on it personally. (For me, this is an absolute.) There are all kinds of issues with entering any contract when you have no intent or ability to perform on the contract. And you're screwing the seller if you don't perform. Don't do it. This is one of the key points for the State to determine if you are acting as an agent.
    1. If you assign multiple deals, but never close on one personally, you’re going to have a hard time saying you’re not acting as an agent.
    2. If you’re putting properties under contract, but have no intent or ability to close, you’re violating contract law, and trying to act as an agent. (Imagine the seller suing you for contract fraud and specific performance.)
    3. If you leave behind a trail of purchase agreements you didn’t close on if you couldn’t assign it, then you’re probably acting as an agent.

    Now for the licensees:

    Being a licensee allows you to advertise a property you don’t own when you have the owner's written permission. You can have it under contract and be acting for yourself, and not as an agent. However, consider this. I can easily imagine a seller filing a complaint/lawsuit on how they were taken advantage of by the unscrupulous licensed, skilled professional real estate agent. You know the one who put their home under contract, then assigned the contract for a lot more than a commission. The agent clearly took advantage of the unsophisticated seller, and stole their home for less than it was worth for their own personal gain. Guess who wins that?

    Being a licensee MAY hinder you. At the very least, it requires extensive disclosures, and the broker’s approval.

    Wholesaling and all real estate activities MUST comply with the three rules above.

    In case you're wondering, I primarily focus on rentals and flips. I do wholesale some properties, which may include assigning the contract.

    For additional information, here is a link to the video with Attorney Jeff Watson interviewing the attorneys for the Ohio Division of Real Estate on the specifics of wholesaling legally. https://www.youtube.com/watch?v=9fi54S8nwUA

    ASSIGNING THE CONTRACT

    So you’ve followed the rules, and successfully assigned the contract. Now, time for the closing and get paid. It’ll be a great day right? What could go wrong? Remember these two points:

    • When you assign a contract, you are giving ALL your rights to the contract to the buyer. You are removing your name on the purchase agreement replacing it with your buyers. You're out of the picture on the purchase agreement.
    • Your assignment agreement is ONLY with the buyer. In exchange for replacing your name on the contract, you agreed to receive a fee.

    The buyer and seller both have the right to change the purchase agreement. So, the buyer and seller could legally cancel the existing contract and create a new one. (Remember, you're no longer the buyer) You could be sitting at the closing table, and you wouldn’t be able to legally stop it. The title co also wouldn’t be able to stop those changes, as the buyer and the seller have the right to change their agreement. A newly written agreement could take the assignment out of play from the title co perspective. The title co is simply a facilitator for the written agreement in the transaction, even when the buyer and seller make a last-minute change.

    Ok, so most buyers and sellers wouldn’t do that. But some would and do. You could try to sue the buyer for not paying you, but how do you think that would go, and what would it cost?

    IN CLOSING

    How do you prevent all the questions and problems above? Simple.

    1. Find a great deal
    2. Buy the property (use a lender or partner as needed)
    3. Sell a good deal

    Clean, neat, simple. And no argument about whether it’s legal.

    1Reply
  • Brandon L.
    Real Estate Agent · Falls Church · Member since 2012 · 2k+ posts · 1k+ votes
    9y

    @Shaquan Whitaker if you want to do the right thing you will buy it, and then dispose of it as you wish.

    One thing sticks out to me "she doesn't want me to list it" are you a licensed agent? if not, why does she think you have the ability to list it?

    1Reply
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