Process for wholesaling in California? Double Escrow?

Question

Hi all,

I have read many forums and talked with other investors along with interviewed a few title companies about this subject and everyone has a different answer.

For some reason everyone one has a slightly different vocabulary for certain processes in wholesaling. For instance: double escrow, simultaneous close, double close, ect. Due to the above mentioned, it makes it extremely challenging to communicate with investors, title companies and even here on the forums.

The process in which I am specifically referring to is this:

I want to wholesale a deal, but I do not want my commission on neither the buy side transaction (A to B), nor the sell side transaction (B to C) to be disclosed. Through past experiences, in other aspects of my life, I have noticed that individuals can be extremely happy with a deal but they often have a change of heart when they discover how much commission I make off the deal.

I have a few questions with the process:

Is there a simply way to do this in California, and is it legal? (without a transactional lender to front the money for three days and possibly leave me out to dry if my buyer on my B to C transaction backs out.)

What is the exact term that would encompass this transaction?

How do I carefully explain to a title company what is taking place and what is the best and proper verbiage to use with the title company in-order for them to Not tell me that this type of transaction is illegal?

I know in other states there are closing attorneys and things that make this process easier but in California I am having a hard time.

I appreciate and welcome all responses.

Thanks

James

Brian Burke · Answer

It's hard to make double-close work. This is what I do to close with wholesalers: I ask them to contact me before they finalize their price with the seller, explain the deal to me and give me a chance to comp it and look at it. I'll tell the wholesaler what I can pay. They then negotiate the price with the seller. If their price is higher than mine they look for another buyer. If their price is lower, I write the offer direct to the seller with me as the buyer for the wholesaler's price. When the deal closes, I pay the wholesaler the difference between my price and the contract price, and I couldn't care less how much the wholesaler makes, I still got the house for the price I was willing to pay. This strategy probably won't work for everyone, it takes a certain level of trust, competence, and confidence to make it work.

Some wholesalers might not like this because they can't "shop" the deal out to a big list of buyers that will compete for it, but I'm not interested in deals that have a bunch of people climbing over one another to buy it. On the flip side, the deal is a sure thing and the wholesaler doesn't get into a position of having a deal in contract that they have no buyer for.

Account Closed · Answer

I agree with David. Using the word commission is relevant. If you are using the word commission when talking about your re-sale with escrow, that's a red flag. Agents get commissions in this business, not buyers and sellers. Use profit, proceeds, whatever....but not commission. Think like a principal, speak like a principal, act like a principal.

I've closed many deals in CA using two escrows. Two purchase agreements, two escrows, two sets of fees. One for the buy, one for the sell. However, every title company I know of will require disclosures to all parties of the existence of both escrows as part of the escrow instructions. Both escrows are contingent upon the other closing, hence they have to disclose that.

My buy and sell and price aren't disclosed. But the disclosures do make the seller aware you are not the end buyer, and the buyer aware you are not the seller (and hence you've likely marked it up).

These days I close on just about everything to avoid the disclosure issue. There are a few investor buyers I've sold to before that I would trust to do a double close with no issues. But for the most part, it's better to sell as a deeded owner. And worth the cost, IMO.

Account Closed · Answer

@James Ehrig,

Most title companies will not let you use the end buyer's money to close A to B transaction. You will need transactional funds to do that and yes the one providing the transactional funds will get paid regards whether the B to C closed or not. Most transactional lenders will not put funds up until the end buyers funds is in escrow.

Tyler Irwin · Answer

Interesting

James Ehrig · Answer

Thank you for your response Account Closed

After reading my previous post, I realize that it does sound a little blunt. That was not my intention.

But the word "commission" is irrelevant in this matter. It is simply a word that was meant to describe " money, pay, cash, payment." The word commission simply describes benefiting or earning money, cash, payment or royalties from the completion of a sale.

Account Closed · Answer

I'm sure there are others here that can respond better than I, but, to start with, "my commission" makes you sound like an agent, not a wholesaler.

Process for wholesaling in California? Double Escrow?

Process for wholesaling in California? Double Escrow?

Most Popular Reply

6 Replies