Five Wholesale Hiccups to Avoid

Wholesalers and Investors: Don't get caught with your pants down on an off-market deal! We just helped fund a large off-market deal and it went smoothly because the right teams were involved who all understood how to support a wholesale deal creatively and ethically. But we've also seen too many poorly written homegrown contracts, financing issues and other transactional mistakes over the years. So, here’s some tips on what to look out for on a wholesale deal - no matter what side of the deal you’re on.

1. Make sure the purchase contract addresses a seller disclosure. In WA state, the transaction can be unenforceable without a Form 17 or a waiver of seller disclosure clause in the contract. Pro tip: if you do a waiver, make sure there's a similar clause in your assignment contact do the assignee also acknowledges and waives the seller disclosure form.
2. 
   
3. Pick a title and escrow company who can support creative financing and wholesale deals with assignment fees. Not all companies are created equal and, even within a company, closing teams can operate differently. While some might be more "by the book", other closers have more flexibility to support large assignment fees, simultaneous closing, etc. This is critical to avoid canceled transactions. Pro tip: be sure to also use a company that offers ALTA Extended title policies which most lenders require. Not all of them do.
4. 
   
5. Don't allow sellers to occupy after close - ever. Also known as a rent back, letting people stay for a short period, with or without rent income, can pose a big challenge with WA state's tenant-friendly landlord laws and the distressed property act of WA. We won't fund deals where the seller is allowed to stay, even if the contract is written up adequately to protect the buyer, because too many “what-if’s” stand in the way to completing a project on time and on budget. At best, it only causes delays in the project. At worst, it cost money to get them out either legally in court or through cash for keys. Either way, it's a huge hassle that should be avoided. Pro tip: Make sure you get keys on day of closing and consider a drive by to ensure its vacant. If it isn't, call your closer right away and have them hold off on recording the closing until your seller is out of the property.
6. 
   
7. Make sure your purchase contract doesn't require an addendum for notification of new assigned buyer. This needs to be explicitly spelled out in the purchase contract otherwise the seller could back out and not follow through by not signing the addendum in spite of the "And/or assigns" verbiage. Pro tip: If you are a wholesaler just starting out, ask your preferred title company if they’d be willing to review your boilerplate templates before you do a transaction with them. They'll call out any errors or omissions that could potentially nullify a contract before you’re in the middle of a closing. For example, many contracts I've seen from wholesalers have no closer identified or closing date listed which could prevent a sale from being completed. We've also contracts without a tax parcel number and /or no legal description.
8. 
   
9. Make sure your lender can fund a deal with a large assignment fees. Many have policies in place regarding assignment fees. We were able to fund not only a large assignment fee, but also 100% of the purchase price by using two rentals as additional collateral (in junior lien position, too). Creative financing matters. Pro tip: Ask your lender (and the title and escrow company) in advance about assignment fee caps, not when you’re trying to close.

Above all else, make sure you are engaging a cross-functional team that has a solid reputation in the business and has a proven track record of closing deals. Particularly, the wholesaler you choose to work with because they are responsible for the actual legal contract, handling the relationship and communication with the seller and the selection of title and escrow on the PSA as well. If they don't know what they're doing, you could be assigned a headache. But this also holds true for your title and escrow company and the lender you choose to fund your deal and the end buyer who's ultimately purchasing the property. If any party to an off-market deal isn't prepared to act creatively or "outside the box", the transaction could fall through in the ninth hour.