Wholesaler's contract - non refundable deposit?

Question

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!

Curt Davis · Answer

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.

Justin Pierce · Answer

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.

Justin Pierce · Answer

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.

Aly W. · Answer

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!

Justin Pierce · Answer

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.

Aly W. · Answer

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!

Will Barnard · Answer

Aly,

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

Aly W. · Answer

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.

Will Barnard · Answer

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.

Ryan Webber · Answer

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.

Wholesaler's contract - non refundable deposit?

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