"Normal" wholesaling terms for buyers?

Question

As a potential buyer, I've been dealing with a wholesaler in my area and I'm not sure if the conditions they've set for the buyer are typical.

If you don't mind sharing:

1) How much of a deposit do you ask for from the buyer?
2) Is the deposit refundable or non-refundable?
3) Is there any kind of inspection period for the buyer?

Thanks.

Kent R. · Answer

I'm just getting involved in the market and don't agree with the typical terms, but in Orlando here is the standard:

1)  $2,000 deposit
2)  Non-refundable
3)  No inspection period

So, as you can see, you really have to do your due diligence and know your stuff when dealing with wholesalers.

Kent R. · Answer

Rob & Will,
I understand that you don't want the property tied up for a long time and the deal falling through due to a "weasel cause".

But what if the buyer truly wants the property and has concerns about, say the electrical system, which they aren't well versed in.  Would you be willing to write the contract with an inspection period of 3 days?

As a buyer, it doesn't make sense for me to spend $300 on an inspection and have you the wholesaler write a contract with someone else before I can submit my contract.

What is happening in our market, is wholesalers aren't allowing inspections, want a non-refundable deposit, and in Bienes case, a large one (this is assuming that it is a lower cost property).

Is there a solution that creates a win/win for both parties?

Will Barnard · Answer

The answers will range due in large part to how the transfer (wholesale deal) takes place and the price points.

For instance, if an REO, it is likely not "assignable" so if the buyer of the REO is using a second escrow for a double closing, then they will want a non-refundable deposit so you don't walk away and leave them holding the bag.

If it is assignable, then it all depends on the contract wording that they are taking over, if an inspection period timeline is left over, they still have that.

In other wholesale deals, they are mostly non-refundable deposits to keep you from backing out at the last minute with nothing to lose, that protects the wholesaler.

As for inspections, typically, you as the buyer should do your inspections first, then decide if you want it and at that point, a refundable deposit is not needed, you have already made your choice to purchase the property.

Rob Gillespie · Answer

Bienes, 
Great question. Being a veteran wholesaler, I get 1k non refundable earnest money and they must do all inspections prior to giving me the deposit. I have had a few walk away in the past after the deposit, but is rare. a few out of hundreds is not bad!

Juan Michael · Answer

Kent,

That is unfortunate for your area..... but here in cali... the prices are higher and the good deals move VERY QUICK..... when dealing with a wholesaler... Sometimes it's their rules because it's their contract. Will, is correct... Reputation is @ stake and you don't want to jeopardize that because of an inexperienced or shaky buyer. One option, would be to find an agent that is willing to write offers aggressively for you... there you will get your inspection periods.... if you like the deal... do it.....if not, wholesale it. You are in control then....Just my 2 cents

Bienes Raices · Answer

The thing is, the price wasn't even that great--it was just OK, and they only had a few thousand in wiggle room to drop the price, although it was a nice looking property. This was an older house and would have to go through a 4 point inspection to obtain insurance, so I had that concern as well.

I bought another property through this group a year ago (which worked out okay for me, although there a couple of unexpected issues) and they only asked for a 2K deposit at that time. Now they are asking for 10% of the purchase price, non-refundable, no inspection period, on each property.

I've decided that it's best only to go through a wholesaler when the property was built in the last 30 years, and is not on septic (I've asked the wholesaler for a septic report before and they didn't have one). At least then you have a chance of catching most of the problems visually if you know what to look for.

Rob Gillespie · Answer

2k is excessive. I am more than comfortable with only a grand.

Kent R. · Answer

I don't think you are being a "nervous nellie".

There is no reason why a wholesaler shouldn't accept a refundable deposit based on a satisfactory inspection, especially since you know THEY purchased the property with a refundable deposit and inspection period.

Of course, if the deal is really that smoking hot, then another investor will pick it up without asking for an inspection.

Bienes Raices · Answer

OK thanks Kent. Their terms are the same, except they're asking for 10% of the purchase price as the non-refundable deposit.

I don't know if I'm just being a nervous nellie and I should be used to taking more risks at this point (I've been doing this for two years now), but it makes me very uneasy to plunk down $5000 with no inspection period for septic, electric or plumbing (it's an older house).

"Normal" wholesaling terms for buyers?

Most Popular Reply