Residential Real Estate Agent · Mc Keesport, PA · Member since 2012 · 449 posts · 154 votes
I've heard investors are using the phrase "Vesting to be determined at close of escrow" on their wholesale contracts. The investor opens escrow and sells his/her buyer slot in the contract.
I'm looking for advice as to how to fill out a contract using this method. Does my company still go on paper as Buyer? Where exactly in the contract do I put "Vesting to be determined at close of escrow"? I was thinking of putting this under the Closing Company clause.
6. Closing Company & Location: Closing to be facilitated by and held at ABC Settlements. Vesting to be determinded at close of escrow.
Is this the best way to do it or is there another way? Thanks!
Just add "or nominee" after buyers name and try to give the closing pros 48 hours notice of any change or they won't like you for short notice changes.
If you are doing a double close or back to back close, then you don't need to do that. If you are assigning the contract to a cash buyer, then you just need to do an assignment with the buyer. Should be just a one page assignment once you have a buyer. Any contract is assignable unless otherwise stated in the contract. If you are buying and wholesaling a property from an individual, then you can assign it. If you are wholesaling an REO/bank owned property, they specifically put in their contracts that they are NOT assignable.
Thanks for the input guys. I am aware of how the double escrow and assignments work. The method I am speaking of is a little different from both of those - a hybrid if you will. Using this method of "vesting" the wholesaler's name or entity is not on the contract to buy. The vesting is left open/undetermined. I heard about this method on a BP podcast, but I'm unsure of which podcast it was on.
Maybe this contract is set up so that only the seller signs it because the buyer is a variable until he or she is nominated. I'm unclear as to how this fits into contract law though, which would seem to need signatures from both parties - buyer and seller - to be considered executed/ratified and valid.
The reason that I am asking about this way of wholesaling is because Pennsylvania imposes transfer taxes on assignments (insane, I know). Looking for more feedback on this. Anyone?
The purchase contract still has to be signed by you, the "buyer for time being". Otherwise it would just be an open ended offer to anyone in the world. This may not be a valid work around for the transfer tax issue.
It would be an open ended offer to any buyer in the world... correct. Which isn't a bad thing for the seller in my opinion. And I've never seen a seller upset because there was too many buyers for their property!
@Jerry Kisasonak I think you may be missing @Wayne Brooks point. It may not be a problem with the seller it may be a problem for you. You wild have an unenforceable contract. potentially you cold be cut out of the deal.
Like most contract issues, it is not a problem until it is a problem. - Ned
It wouldn't be unenforceable until I or someone else would sign it. I think if I retained the original agreement with the seller's signature in blue ink all I would have to do is sign the agreement to make it valid and inforceable. If the seller signed with another investor in the meantime, there would be a cause for disputing the other agreement because the seller already had this open-ended agreement out there (with me). As I see it, the issue would come down to what date is on the agreements. Of course, a contract is only considered executed based on the most recent date of signing. So in that regard, I suppose I'd be in second position in terms of sales agreements - a backup offer if you will. Still disputable, but weak.
I believe this question was asked on the podcast, and the answer was that the wholesaler didn't worry about that because he had established some rapport with the seller and had a good working relationship - so it hadn't become an issue. I know this doesn't mean squat contractually. And, like you said, it's not a problem until it's a problem. But statistically if it ends up happening once out of every 50 deals, still not bad odds in my view.
How much is the transfer tax you're trying to work around? The "offer" by the seller doesn't become a contract until it is accepted, so the owner could withdraw at any time, prior of delivery of an acceptance.But I think a seller wouldn't be comfortable with an open ended offer laying out there for weeks anyway, but maybe I guess.
I believe the transfer tax would be exactly what it would be had I bought and sold the property as in a double escrow transaction. The transfer tax in PA varies depending on what municipality the property is in. The state of PA charges 1% and the local tax is anywhere from 1%-3%. As an example, the City of Pittsburgh is 3%, so with the state tax of 1% the total tax is 4%. As you can imagine, this can be fairly "taxing" on a wholesale profit.
To your comment about the contract, I realize that the "offer" isn't accepted until both parties sign. But, then again, there's nothing holding my hand back once I have a contract that's already signed by the seller. It would be a question of ethics if the seller said, "I want to cancel that contract," and then I turned around and ratified it and said, "We can't do that. It's already been fully signed."
If the seller withdraws the offer, before receiving acceptance, it's over, but you may be right that they usually would call first. Just assume everything will be looked at by a judge at some point. A couple of weeks open to acceptance, might not be enforced by a judge later, depending on the entire situation.
I'm sure that there would be an issue with most closing companies too. They aren't used to having half-signed sales agreements sent in, asking to open escrow on it. I have a good relationship with one that would likely do it, but of course I'd be stuck with paying for tax certs, lien letters etc should the deal not close.
I wonder how the contract would be written up in regards to the Acceptance clause that's in all RE agreements, i.e. "Written acceptance of this offer must be on or before______." I don't know if there would be an issue if you omitted this clause, but keeping it in there wouldn't really work either. Hoping to get some feedback from someone who is structuring their deals this way, but so far no takers.
If the whole point is to try to avoid some BS tax on assigning a contract that is state specific seems like the best course of action is to get in touch with a great local RE Attorney and ask them if there is a way to structure a contract to avoid this fee.
check with an attorney. In the states I did business in I just used buyer John Smith, et al. Vesting to be determined in escrow. and John Smith signed the contract as the buyer, vested in end buyers name in escrow. Worked for me, don't know your state. That way I had a single escrow and maybe in your state exempt from the extra transfer fee because nothing was really transfered twice, no assignment per say.