Wholesaler's contract - non refundable deposit?

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Wholesaler's contract - non refundable deposit?

Aly W.
Investor · Middletown, NJ · Member since 2008 · 2k+ posts · 1k+ votes

I have an offer in with a wholesaler on a property he already has under contract (short sale), and the bank has a BPO. The wholesaler said if we come to an agreement and sign a contract, he will need a non-refundable deposit made out to his title company. He says we would need to use his title company, as that is how he structures his deals.

I didn't yet ask what the terms of non-refundable would be, or how much he is expecting, but I don't like the idea and I can imagine my attorney's reaction to that. I've only dealt with realtors before. Of course I would have an inspection contingency in the contract and I could also object to the entire thing, but is this typical for a wholesale deal? Is there an existing thread someone could point me to?

Thanks!

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Curt DavisBusiness Member
Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
17y

Aly,

What he is asking is a standard request. We are a wholesale investment company and when someone wants to buy from us they need to put down at least $1,000 in ernest money. We give them a 3 day free look period to complete all due diligence. After 3 days the EM is non-refundable.

Try to look at it from their standpoint. Wholesale investors deal with deadbeat buyers all the time who say they are going to buy but never do. This is a way for us to weed out the ones who are not serious.

Hope this helped.

Curt Davis - KAIZEN Realty538 Reviews
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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    17y

    Aly,

    What he is asking is a standard request. We are a wholesale investment company and when someone wants to buy from us they need to put down at least $1,000 in ernest money. We give them a 3 day free look period to complete all due diligence. After 3 days the EM is non-refundable.

    Try to look at it from their standpoint. Wholesale investors deal with deadbeat buyers all the time who say they are going to buy but never do. This is a way for us to weed out the ones who are not serious.

    Hope this helped.

    Curt Davis - KAIZEN Realty538 Reviews
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  • Ryan Webber
    Wholesaler · Amarillo, TX · Member since 2008 · 1k+ posts · 659 votes
    17y

    On my wholesale deals, I require a $1,000 non-refundable from when the buyer signs the contract. If you need time to inspect or to verify your financing, you need to do it BEFORE you sign a contract with me.

    I also make the buyer make the check out to my company directly and NOT to the title company. Realtors really freak out about that one too.

    I'm not playing games. That money is mine when you sign that contract. I don't pressure anyone to sign a contract. Take all the time you need, but when you come to sign understand that you are donating a $1,000 to me no matter what. I'm only looking for very serious buyers.

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  • Aly W.
    OP
    Investor · Middletown, NJ · Member since 2008 · 2k+ posts · 1k+ votes
    17y

    Thank you both, this is good to know. The property has existing tenants, and the wholesaler is not clear on the lease situation. Waiting for more info.

    What is the significance of using his title company instead of my own? In NJ, title fees are state regulated so I'm not sure if using his title company results in any "referral" fee to him which he passes on to me? He mentioned something about a possible concession to me for using them.

    Also, do you usually get written offers on the spot, or verbal, to be written up later if the bank accepts the short sale number?

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    17y

    His title company is probably one he's worked with and he knows will do the assignment or double close or whatever it is that's being done to make the deal happen.

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  • Aly W.
    OP
    Investor · Middletown, NJ · Member since 2008 · 2k+ posts · 1k+ votes
    17y

    Thanks Jon. I'm familiar with the realtor process, just not the off the beaten track process yet :)

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  • Ryan Webber
    Wholesaler · Amarillo, TX · Member since 2008 · 1k+ posts · 659 votes
    17y

    Just as Jon shared, his title company/agent is going to be very open to the double closing that he'll do for the short sale.

    Sometimes they will also discount escrow fees or jump through hoops that any old agent wouldn't.
    Finding and sticking with a good investor friendly title agent is an essential part of building your team.

    As for the verbal or written offer for a short sale that's being wholesaled, I don't have much experience with that personally. I would guess you could just sign a contract with the only contingency being that the short sale is approved at a certain amount.

    As for when I'm selling a property I normally have to have a written contract and earnest money from my buyer before I consider it sold. I keep contracts on me that I can fill out anywhere so I don't have to worry about filling it out later.

    I do have one buyer that I work with on a verbal basis but I've done a lot of business with him, and there is an incredible amount of trust established.

    If I were buying a short sale or any other property from another investor or really from anyone, I want a written contract as soon as possible. A verbal agreement is only worth the paper its written on.

    If that wholesaler doesn't want to sign some type of contract with you then I would be surprised if they are not shopping it to other investors.

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  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    17y

    In addition to what Ryan stated about the non-fefundable amount, I would add that the wholesaler needs this not only to ensure they have a real buyer, but if theat real buyer does back out, they have even less time to find a new buyer in which case they could lose the deal. By getting some non-refundable up front (and I too would have it paid direct to my company and not title) I as the wholesaler at least made a small amount of money in the off chance I can not close the deal with another buyer before my time runs out.

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  • Aly W.
    OP
    Investor · Middletown, NJ · Member since 2008 · 2k+ posts · 1k+ votes
    17y

    Thanks Ryan. He had told me at first that the only other offers he had were verbal. When I called him the next day to see what the next step was, since I was ready to make an offer, he said he had an offer for a certain amount. Hmmmm....I made an offer based on my valuation of the property, which was lower, and he said he could possibly get the bank to accept it.

    That was Monday of this week and I haven't heard from him since. I wonder if he is working the deal with the bank or shopping to other investors? How long do you take before you get back to your buyer? I was waiting for the OK on the price to write up the contract. He didn't ask for a deposit at the time.

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  • Ryan Webber
    Wholesaler · Amarillo, TX · Member since 2008 · 1k+ posts · 659 votes
    17y

    I have come across multiple short sale wholesalers who will shop their pants off to the point that I don't even look at their houses anymore. I think it has to do with the fact that they don't know how much they are going to end up getting the property for and there is this extended time period to even find out what they are really going to get it for.

    I'm almost always the lowest offer so I HATE getting shopped by a wholesaler. Well let me say that I hate it when they act like they're going to sell it to me and are shopping it in the meantime. I appreciate honesty, and for some reason all the short sale wholesalers I've interacted with have strung me out in a distasteful way.

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  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    17y

    Just one more reason why I don't work short sales anymore, at least not here in CA.
    Sounds to me like you should steer clear of short sale deals Ryan. Plus they can take so long, with an REO, you know you either got it or didn't.

    Podcast Guest on Show #130
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  • Aly W.
    OP
    Investor · Middletown, NJ · Member since 2008 · 2k+ posts · 1k+ votes
    17y

    Hi Ryan,

    I'm starting to feel that way, the wholesalers that have contacted me say they already have several offers on all the properties...all of which seem to be stalled with a bank attorney anyway, even with a BPO.

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  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    17y

    Aly,

    Since that is the case for ytou and many others, why not go after wholesalers with REO's rather thna short sales?

    Podcast Guest on Show #130
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  • Aly W.
    OP
    Investor · Middletown, NJ · Member since 2008 · 2k+ posts · 1k+ votes
    17y

    I'd be happy to...those that have contacted me have had short sale properties, but I'm by no means looking for them. I'd prefer anything but!

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  • Justin PiercePro Member
    Rental Property Investor · Woodbridge, VA · Member since 2008 · 543 posts · 121 votes
    17y

    I don't necessarily think the nonrefundable deposit is a big deal. The wholesaler is committed to the deal at this point so they want to make sure you are as well. Provide yourself a short time period to conduct your inspections but beyond that the deposit is there to provide assurance. If he doesn't want to give you time to do your inspection then do your inspection before you contract. As long as its a reasonable amount and its a good enough deal don't let the deposit stop you.

    We are in the business of risk. No matter what anybody tells you.

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  • Justin PiercePro Member
    Rental Property Investor · Woodbridge, VA · Member since 2008 · 543 posts · 121 votes
    17y

    Sorry,

    I didn't read the entire chain before I posted. You are already beyond my answer. Ah... anyways good luck.

    A good wholesalers is very valuable but they are very hard to find. I find it is very difficult to get a straight answer from most of them. Once one of them brings me a property I opperate almost as if they weren't there. I ask them questions but I put very little value to it. Like everything else you have to verify for yourself.

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  • Aly W.
    OP
    Investor · Middletown, NJ · Member since 2008 · 2k+ posts · 1k+ votes
    17y

    You're absolutely right Justin. I ask them the same questions I'd ask a realtor, and usually get the "I'm not sure, I'll get back to you" answer.

    I'm OK with the deposit now, thanks to everyone for the input. What do you usually give for the deposit? I've given $1000 in regular realtor deals.

    BP is really amazing, I appreciate all the help!

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  • Justin PiercePro Member
    Rental Property Investor · Woodbridge, VA · Member since 2008 · 543 posts · 121 votes
    17y

    1% of the purchase price is fairly customary for a deposit. There's really no set rules, though, and that custom is more for an actual seller not a wholesaler. I would certainly not pay anymore than say 25% of the whosalers total finders fee.

    Its hard to judge if you have a good wholesaler until after you've done a deal or two with them. It seems like everybody is calling themselves a wholesaler now and its really muddied the water.

    I really wish you the best of luck. However, it does sound like you have a pretty good deal on your hands. Ohterwise it wouldn't be worth this much heartburn.

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