An escape clause in the Purchase and Sale Agreement

Hanford, CA · Member since 2018 · 7 posts · 3 votes

This is what is holding me back right now. I can't seem to find any form, no matter where I look, that allows me to essentially back out of the deal if I can not find a buyer within a certain amount of days. This isn't to say that I don't care about the person I am buying from, but I am not flush with cash myself, and I don't want to be left paying for a house I can't even afford yet. Can someone point me to a contract that allows me to back out of a deal if circumstances don't go according to plan? I have an agreement to sell the contract to the buyer, but I can't find a contract with that specific clause that allows me to leave if I can't find a buyer. Any help would be appreciated.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

bad business practice from the get go... if you want to list and sell real estate you might want to get in the profession were a listing agreement gives you 2 to 6 months to sell something and assures you get paid.. instead of going into contract with no ability short of finding someone to assign a contract..

its what gives wholesalers such a bad name in the industry.

not to mention a seller can back out at anytime since you went into the contract with fraudulant inducement.

you may want to rethink this some.. the landscaped is littered with those that try and blow what little cash they have and end up never doing a deal.

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Wilson Lee
Birmingham, AL · Member since 2014 · 178 posts · 75 votes
8y
A lawyer is your solution. Pay them a few hundred dollars. They will craft language that should be backed by president and/or case law.
Normally, You would only lose your earnest money if you back out. It benefit you to put up the smallest earnest deposit you can. It is very unusual for a seller to try and sue you to have a court compel.
There is some less ethical ways add escape language. For example, in your inspection contingency, You can put
"Contingent upon buyer's approval of home inspection" Rather than "Contingent upon passing home inspection
If you want out of the contract, say you don't approve of the inspection. Regardless if it is passing.
3 Reply
Steve Kontos
Investor · Great Neck, NY · Member since 2016 · 679 posts · 467 votes
8y
@Ryan Kittrell
Your sales agreement has a section where you are allowed to list any exit contingencies you want. Here are two great ones:
Contingent upon partner approval
Contingent upon passing a property inspection
2 Reply
John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
8y
Entering contracts with no intention of purchasing is called FRAUD.
2 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
bad business practice from the get go... if you want to list and sell real estate you might want to get in the profession were a listing agreement gives you 2 to 6 months to sell something and assures you get paid.. instead of going into contract with no ability short of finding someone to assign a contract..
its what gives wholesalers such a bad name in the industry.
not to mention a seller can back out at anytime since you went into the contract with fraudulant inducement.
you may want to rethink this some.. the landscaped is littered with those that try and blow what little cash they have and end up never doing a deal.
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Bob Okenwa
Real Estate Agent/Investor · Peoria, AZ · Member since 2016 · 2k+ posts · 2k+ votes
8y
@Ryan Kittrell
I am not one to lecture anyone about their business, but tying up a property with no intention to buy or no list of persons to purchase is not a practice one should really undertake as it is a great disservice to the seller of the property. As some others have stated, you can write contingencies into the contract, but holding a home hostage for weeks or months may not be the best way to go.
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Lewis Christman
Financial Advisor · Macungie, PA · Member since 2017 · 83 posts · 26 votes
8y
I can't remember exactly the words but here is the jist. - As a wholesaler you need to have 6 buyers lined up for a property. 6 that want a 3 bed 1 bath (or whatever criteria) in X area. Only then put a home under contract and contact #1. if they buy it great if not move to #2. They need to be interested and able to buy today!!
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Brian Pulaski
Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
8y
If you have no intention or ability to close, don't get a house under contract? Seems easy to me...
I understand wholesaling, I am on a lot of wholesalers lists, I even feel wholesaling can work and can be done right... but going out of your way to ask for escape clauses so "you" don't get burned into buying the house you are under contract to buy... yikes!
I sure hope if someone gets an offer from you they google your name and see this thread!
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Ryan Kittrell
OP
Hanford, CA · Member since 2018 · 7 posts · 3 votes
8y
Look, I want to be clear that my intention was to never mislead or hurt a potential seller. I just wanted to protect myself is all. And on top of that, I would not tie a contract up for months. If I can't close with 15 to 20 days, I'd back out. I just wanted to make that clear. I'm still learning and still trying to work on getting better, so I apologize if I offended anybody.
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Ryan Kittrell
OP
Hanford, CA · Member since 2018 · 7 posts · 3 votes
8y
Originally posted by @Bob Okenwa:

@Ryan Kittrell
I am not one to lecture anyone about their business, but tying up a property with no intention to buy or no list of persons to purchase is not a practice one should really undertake as it is a great disservice to the seller of the property. As some others have stated, you can write contingencies into the contract, but holding a home hostage for weeks or months may not be the best way to go.
And I don't want to hold them hostage for months. I'm still trying to understand certain things about this. I'm sorry if there was a misunderstanding.
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Lewis Christman
Financial Advisor · Macungie, PA · Member since 2017 · 83 posts · 26 votes
8y
@Ryan Kittrell The first thing you need to do as a wholesaler (IMO) is build your list of buyers and their criteria.
Investor A - criteria 3 bed 1 bath - price point - ready and interested to buy - no (not good)
Investor B - criteria 3 bed 2 full bath - price point - ready and interested to buy - yes (great - 5 more people like this then go find a 3 bed 2 full bath in their price point and get it under agreement. Then call the investors 1 by 1. I have X for X are you interested - yes great lock it in. NO - ok I will call my next investor. Call # 2.
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Tom GimerBusiness Member
DMV · Member since 2017 · 3k+ posts · 3k+ votes
8y
@Ryan Kittrell You won't find such a clause because nobody puts that in writing... for obvious reasons.
With no cash you'd make a better bird dog.
Once you have some cash or have done some deals put a "study period" or "general inspection contingency" in your arsenal.
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Blair Poelman
Real Estate Broker · Provo, UT · Member since 2013 · 689 posts · 511 votes
8y
I feel that the first thing you should do when wholesaling is to try avoid being a wholesaler. Always have multiple funding sources, and always have multiple exit strategies. If you can’t find a buyer, buy the thing yourself. If it really is that good of a deal you will probably make more money by flipping it. New investors get this silly idea in their head that Wholesaling is a quick easy way to make money. The reality is it’s actually pretty freak’n difficult to pull it off, and it should be one of multiple exit strategies on a deal, but never the primary or first strategy.
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Brian Pulaski
Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
8y
Originally posted by @Ryan Kittrell:

Look, I want to be clear that my intention was to never mislead or hurt a potential seller. I just wanted to protect myself is all. And on top of that, I would not tie a contract up for months. If I can't close with 15 to 20 days, I'd back out. I just wanted to make that clear. I'm still learning and still trying to work on getting better, so I apologize if I offended anybody.
15-20 days of making someone think you are buying their house in CASH only to be told... sorry I was never going to buy your house and have to back out, is misleading and hurting them (unless they truly didn't care one bit about selling their house).
My opinion, enter a contract, try to wholesale it, and if after 15-20 days you can't find a buyer, Honor your contract and buy the house... only way to not mislead and hurt them, do what you are under contract to do.
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John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
8y
Originally posted by @Ryan Kittrell:

Look, I want to be clear that my intention was to never mislead or hurt a potential seller. I just wanted to protect myself is all. And on top of that, I would not tie a contract up for months. If I can't close with 15 to 20 days, I'd back out. I just wanted to make that clear. I'm still learning and still trying to work on getting better, so I apologize if I offended anybody.
My contracts ALWAYS have a contingency: inspection period. Usually less than seven days, and if no issues that are major, I CLOSE. IMO NEVER enter into a contract UNLESS you intend to purchase. I highly doubt ANY seller would ever do business with you if you admitted that you have no intention of purchasing. There are legitimate reasons to back out of a contract. Lying to a seller and not have any intention of closing or funds to close is not one of them. Unfortunately, there are lots of FRAUDS AND SCAMMERS rampant on BP promoting this very garbage. BTW, I haven't found one of these FRAUDS that would sign the same BS contracts to sell their house that they want others to sign.
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John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
8y
Originally posted by @Brian Pulaski:

If you have no intention or ability to close, don't get a house under contract? Seems easy to me...
I understand wholesaling, I am on a lot of wholesalers lists, I even feel wholesaling can work and can be done right... but going out of your way to ask for escape clauses so "you" don't get burned into buying the house you are under contract to buy... yikes!
I sure hope if someone gets an offer from you they google your name and see this thread!
Not sure if you saw it, but the lowlife that tied up a house in TX and clouded title posted about it. The seller FOUND the thread by googling the persons name. I got a call from the seller asking for help. Anything you put on the net CAN come back to haunt you.
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Ryan Kittrell
OP
Hanford, CA · Member since 2018 · 7 posts · 3 votes
8y
Thank you all who answered my question. I will take your words and use them to better research for buyers, as well as to look up better ways of negotiating contracts with sellers. Thank you all very much for your helpfulness. This has been quite enlightening and it makes me want to continue because I have more to learn. Thanks again.
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Kristopher Gomez
Flipper/Rehabber · Riverside, CA · Member since 2016 · 130 posts · 105 votes
8y
Ryan Kittrell I can help you out send me a Pm if you need advise that way I can help you without listening to all the nay sayers... I do a little of everything but I do a ton of wholesale deals it’s not rocket science if you do it right. If the deal is good you won’t need a escape clause i sell all my deals with 1 text message in most cases but I understand your concern. And if you tie up a deal for a week and can’t close it’s not the end of the world deals fall apart all the time for multiple reasons life goes on.
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Kevin Scott
Flipper / Buyer · Tacoma, WA · Member since 2013 · 160 posts · 80 votes
8y
If you plan on doing this even with the really good and important feedback from @Brian Pulaski @John Thedford @Jay Hinrichs then at least put up a larger earnest money deposit like 500 or better a 1000 and if you don't sell it be ok with losing that money. IF you aren't willing to risk that then don't tie anyone's property up. You can do serious damage to someone's life if you fail to close just because you don't have a buyer even if its only for a week. Ive bailed several people out of situations where they had a "cash buyer" that failed and only had a week until foreclosure auction because of it.
The truth is you really should take the members mentioned aboves advice. If you want to wholesale, that is fine but don't do it if you can't close. Instead of looking at out clauses take some time to learn how you can actually buy the property. Get some hard money lined up as a backup and if you don't have down payment money get a second person to go in with you as the down payment provider. Or some other creative way to make the purchase work. Go ahead and try to sell your contract, hopefully you do, but if you can't sell it then you will be able to close.

This will help you keep your offers reasonable as you might need to take the property down or at least lose a decent amount of earnest money. If you want a real out clause you could actually tell them you will be using private money and not bank money but it still needs to get approved.
Just a side note. --
This is the kind of stuff that will eventually start getting fined or worse. At some point the regulations will get tougher and everyone will blame the government, forgetting that they were the cause of the need to regulate. When enough people get screwed (unintentionally sometimes) by people claiming to buy with cash and not closing, then something will be done about it and the only people to be blamed are the fake wholesalers and scammers not the government.
I'm not directing this at you @Ryan Kittrell I know your just getting started and trying to learn as much as possible.
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Ryan Kittrell
OP
Hanford, CA · Member since 2018 · 7 posts · 3 votes
8y
Thank you Kevin, I appreciate your concern and your words of wisdom. In truth, I agree that when you throw apples, and you are now getting fined for throwing apples, and you complain because you were throwing apples and got fined, you have nothing to complain about. This is just a metaphor, sure, but it relates here. For me, I understand what you are saying, and I thank you for your input. I've seen other threads on these forums of people asking the same question, and they haven't gotten as much heat as I have. But, again, its all about learning, so thanks again Kevin, and to the others for their info.
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