Assignment fee or percentage of asking price? What's better?

Question

Hi everyone. I have a few questions about wholesaling. I found a property could potentially be an excellent deal.

1. When marketing property to potential investors after i tie it up in contract, do I include the assignment fee in the selling price, OR for example I have the property tied up for $300k and list it at $350k as a starting point and lets say we negotiate down to $310k...The extra 10k is my profit? Or is it a separate fee? 
2. When listing the ARV, I have done some comps on my own looking up recently sold homes. Should I pay for an appraisal to get a rock solid number? 
3.In the beginning Do I tell the seller my intentions of flipping it to another buyer?  Will this make buyer suspicious or less willing to work with me as a newbie? I have spoke to some people already and they have no idea about wholesaling etc. So I don't want the seller to brush me off. And to keep costs down can I not involve an attorney? I would like to use as little money as possible for my first deal.

Thanks for your help guys!!!

Jaremy Moritz · Answer

I always tell sellers that I won't know until shortly before closing if I will be the one closing on the property.  I let them know that I've got a lot of properties in play and sometimes I may do a joint venture with another investor, assign the contract to one of my investors, or bring in a partner and keep the house as a rental.  I've done all three, and they are viable options, but wholesaling is my primary objective but explaining it this way covers my ass in case my buyer doesn't close on time or some other issue comes up.

Curt Davis · Answer

I do not claim to be a know it all but the home owner does not have to sign the assignment contract.  The home owner signs a contract between the seller/home owner and the buyer who is you.  Now if you plan to assign the contract to a 3rd party the assignment is signed between you and your new buyer. You should collect earnest money from the new buyer in the case they do not perform or close. This will also weed out the other tire kickers.

You should be honest with the home owner but remember its all on how you explain it to them.

Steve Babiak · Answer

Regarding involving an attorney: in some states, it is common practice for attorneys to handle real estate closings, whereas in other states an escrow company or title company will usually handle closings.  If your state is one where attorneys handle the closings, then you will probably have to find an attorney for that.

Joan Haynes · Answer

Thanks everyone! Your responses are very helpful. A bell went off on the suggestion of backing into my numbers to determine my fee....that will work for me!

Brian Haskins · Answer

No, once you assign the deal they are the new principal in the contract. Itâ€™s a good idea to see the deal all the way through because you haven't gotten all your money yet in most cases. I'm not sure exactly what you mean by leg work. And yes you always have to be upfront and let them know, if not it can blow up and kill your deal. In this business no matter what, you always want to be transparent.

Brian Haskins

Mikey Cas · Answer

Thanks guys for all the great information and help! So am I responsible for any of the legwork for the investor that I assign the contract to? Or does the assignment contract technically make the person I am assigning the new owner?  I forgot to mention, When presenting the property to Investors...Do I tell them flat out what I am doing? Like say, I have a property available for wholesale asking price is x amount of dollars with a 5k assignment fee?

Brian Haskins · Answer

Well you donâ€™t list the assignment fee in the selling price. You just use an assignment contract which is completely separate and thatâ€™s where your fee goes and then that along with the original contract goes to the title company and you get paid at closing.  As for the arv just use your own comps, investors will and it won't make one it of difference if you have an appraisal or not because most investors don't believe appraisers but do their own comps. I would always suggest you be open to the homeowner upfront because they have to sign the assignment contract so they will know and if you spring it on them then they may kill the deal. If you plan to be in business long don't hide or lie about anything it will bite you!

Brian Haskins

Don Konipol · Answer

1. Either method may or may not work depending on where the property is located, the current market conditions, supply vs demand, financing environment, etc.  Experience and trial and error will be your best guide.

2. Appraisal may provide additional support for your asking price, however most wholesalers would consider it a extra unneccessary expense.

3. Most wholesalers do not inform sellers that they are merely trying to flip the property at a higher price.  The implication being that the seller will not accept their offer if they will only close if they can find an end buyer and if not will use a "weasel" clause to back out at no cost to them.  You will have some disagreement on the morality of this situation.  Most wholesalers would agrue that there is no moral obligation to announce to sellers your intention; that everything that needs to be said is in the contract.  If the seller chooses to accept the contract without further question then nothing more is required from the buyer.
From a legal point they are correct.  However, even if they are also correct from a moral perspective (of which I am unsure) I still would not allow the seller to believe that I am the end buyer when I am not.   I believe that total honesty (or as close to it as possible) will provide the best out come in the long run.  Then again I am fortunate enough to be in a financial position where I can pick and choose the deals I want to persue.

4. Attorneys are probably not needed for simple real estate transactions IF you know what you are doing and if the deal is a simple 1-4 family residence.  That being said, those beginning in real estate might be wise to seek counsel before signing their name on a legally binding document.

Assignment fee or percentage of asking price? What's better?

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