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Updated over 10 years ago, 03/09/2014
Losing 10k on my first wholesale...
Hi BP, looking for a little advice on my first wholesale deal. I have a 4/2.5 with an ARV of 125-130k under contract for about 65k; the home needs about 12-15k in cosmetic work. It is an absentee owner who has owned the house for 30+ years; they are facing some health issues and want it “out of their hair”. I am to close at the end of the month, I have a qualified buyer lined up and the deal would net me about 10k.
Sounds good, right? Now for the fun part…back in 2006 the owner bought another house for about 250k, the bank financed the owners primary property over 100% on a 5/1 ARM. While that is a whole other issue about the lending practices that can be attributed to the mess we are climbing out of, the bank buried some language and items in the loan the seller was not aware of (per them). They owned the property I have under contract free and clear. However, when I was searching through the paperwork, I found they tied this property to the owner's current mortgage. The bank won't release the property I have under contract unless they get X amount of money. So, the seller was still super motivated to move it, they were going to sell some stock to close the gap and make closing happen. They reiterated how they just wanted rid of it and to move on!
When they went to sell some of the stock, their adviser asked why they were doing so and then he went on a tangent about why this was a bad idea and they should not go through with the sale. Therefore, the seller contacted a Realtor and they took a look at it, promised the seller they could get X in their pocket for it and not have to bring a dime to the table. While I agree they could get more on the open market, the Realtor is basically promising the ARV without any of the repairs being done, not discussing the loss of rental income, the closing and transfer fees they will now have to pay (which I was covering 100% of), etc.
Now the seller wants to list the property and void our contract. I discussed with them what the cost to sell is and what they could reasonably expect to net from a MLS sale...still no go. My question is: should I charge a release fee? Besides the Realtor trying to circumvent me and list the property being unethical; does pursuing specific performance with the seller become my best route? Honestly, I don't know if I can even go that route because without clear and equitable title, the deal won't close anyways (if they don't sell the stock to bring the money to the table). I even tried to renegotiate my offer after speaking with my buyer and the seller still won't go for it because they have the number the Realtor put in their head now. Should I pursue this somehow or let it go and consider it a learning experience?
Looking for some guidance from you experienced folks as this is my first wholesale. Thanks in advance!
Move on, pick your battles, this deal was shaky even before this happened
I have had a seller want to back out several times over the years. Unless the seller had been scamming me I just charge them any costs I might have had. I just go to the next deal. They are all over.
I had a property under contract and the seller got an offer several days after my offer for $600,000 more than my offer. I just tore up our contract without him asking me. I had also loaned him some money three months previous and he paid me 100% on my money.
Your success will not depend on your playing hard ball on these deals.
Good luck.
Bill
Thanks Bill Jacobsen and Seth Sherman , I appreciate it.
@ Mike Webb
I'd say this is a great time to promote who you are.Let the deal go! Be kind with the sellers and offer your help if they ever need it.If the deal won't go through with the realtor (not unlikely) they will come back to you.In the mean time you'll promote your professionalism and passion and you will earn their trust. Who knows who they know that could use your services.I know the $ would be nice but never underestimate the power of word of mouth marketing.What goes around comes around!
You sound just like my dad and my father in law! You're not losing $10K. You're just not making money you thought you were going to make. It happens.
For the seller, selling via a wholesaler, or directly to an investor, is almost never the most profitable option. It may be their only option if the property is really troublesome, but it always has a price. In this case repairs are minor. So I would think, based on your numbers, that they could get at least $100K selling it on the MLS. Even after realtor fees, they net much more than selling it to you for $65K.
When wholesalers talk about "leaving meat on the bone" for their end buyers, that "meat" is coming from somewhere. Same for the wholesaler's fee. That meat and that fee are coming right out of the seller's pocket. Some sellers are OK with that. But in this case the seller received good advice and will end up keeping more money in their pocket. Tell them "keep in touch in case you change your mind" and move onto the next deal.
Or, if they know someone else who is looking to sell, to keep you in mind. Word of mouth referrals are gold.
Attila Bertalan , Jon Holdman , Dawn Anastasi thanks for the insight. John, I know I'm not "losing it" just thought that was a decent title to get the point across. Haha. I really appreciate the advice from all. I guess I know how to pursue the call and unwind the deal Monday.
The sellers have problems that you can't solve. The way you've laid it out it appears your buyers have to bring cash to closing. Suing buyers for performance on a contract that requires them to bring cash to closing could be incredible waste of time and money.
The agent/listing route may or may not get the deal done more easily for the sellers. Let them try that. And keep communication open and let them know that you'd be happy to hear from them anytime. It's never over till it's over. And sometimes not even then. :)