wholesaling Earnest Money and Due Diligence

[Chandler Williams]

Hey guys,

This might be a super basic question, I'm still very new to wholesaling.

I've been a Utah realtor for two years now and a beginner investor. My buddy and I have been finding wholesale deals and are in the process of starting a new wholesaling business.

The one thing I am unsure about is how earnest money works when you have yet to find a willing buyer to assign the contract to?

Does EM still have to be delivered in 3-4 days? And if we don't have an actual buyer in that timeframe, does the EM have to come out of our pocket?

Is the normal practice in wholesaling to analyze a deal -> find a buyer -> then offer the price to the seller and form agreement? Or find a deal first then market it to buyers, then offer on the house and create an agreement with the seller & buyer?

What is the standard process from start to finish so we can eliminate as much risk as possible?

Is it better to have a willing seller and buyer before sending the initial purchase/sale agreement? or should we get the seller to agree first and then find a buyer?

Hope this makes sense

[Scott E.]

I'll actually answer your questions instead of going on an emotional rant like the poster above.

The only caveat is that I'm speaking to how things work in my region, and how wholesalers operate around here. It may differ a bit in your area.

1. The one thing I am unsure about is how earnest money works when you have yet to find a willing buyer to assign the contract to? - If you are putting an offer in on a property to get that property under contract, part of the contract is that you put up earnest money. Sure you could put $1 up in earnest money if you don't want to be much out of pocket here, but do you think a seller is going to accept your offer when you put up $1 earnest?

2. Does EM still have to be delivered in 3-4 days? And if we don't have an actual buyer in that timeframe, does the EM have to come out of our pocket? - Agents and title companies I work with always expect EM to be delivered within 24 hrs of opening escrow. And yes, the EM has to come out of your pocket. You're the buyer at this point, until the contract is assigned.

3. Is the normal practice in wholesaling to analyze a deal -> find a buyer -> then offer the price to the seller and form agreement? Or find a deal first then market it to buyers, then offer on the house and create an agreement with the seller & buyer? - No. What is normal practice for wholesalers is to get properties under contract, then market those properties to their list of buyers. If the wholesaler is unable to find a qualified buyer before the due diligence window expires, they will back out of the contract.

4. What is the standard process from start to finish so we can eliminate as much risk as possible? - Get properties under contract for way under market value. Assign the contract to a cash buyer for a price higher than the contract price. Collect your fee when the transaction closes.

5. Is it better to have a willing seller and buyer before sending the initial purchase/sale agreement? or should we get the seller to agree first and then find a buyer? - Answer to first question is no. Answer to second question is yes.