All Forum Posts by: James Adams

There is actually a third alternative method for use in trying to wholesale.  You pay an option fee to the seller for the right (not obligation) to purchase their property for a specific price for a specific amount of time.  So, you can, if the seller agrees, have the exclusive right to purchase a property for say 60 days at a specific price for say a $750 option fee.  If the option period expires without you exercising the option you lose the $750.  You make money by either (1) selling the option contract to a third party who wants to purchase said property for a fee , in which case an amount over the $750 would be “profit”, or (2) exercise the option and immediately resell the property to a third party for a greater price, in which case the “sale” price minus the sum of the purchase price and the option fee is “profit”. 

While the option method is rarely used stand alone ( it’s sometime part of a standard purchase contract as it is in Texas), it does eliminate all the problems associated with the issue of wholesalers needing to be licensed, or the problem with “intent” to close.  Everything is upfront with the seller knowing that the buyer will only close if it’s to his monetary advantage, and the seller receiving compensation for taking his property off the market for a period of time.

Ok! I can definitely tell you are a newbie, but you are in the right place to get advice to prevent you from making some rookie mistakes! 

1. There is no such thing as a 'wholesale' contract. Only a purchase agreement--which is signed by the seller and the wholesaler (you) and the assignment of contract which transfers your equitable interest in the above mentioned purchase agreement to the end buyer for a fee. You can use the standard, state sponsored purchase and sale agreement for your state (the one the real estate agents use) as long as it isn't exclusively for agent use. If you need an assignment of contract agreement, I am more than happy to email you mine. But the actual purchase agreement should be found through your state if possible and if not possible consider having a real estate attorney draft one for you OR ask your title company where you could get your hands on one. 

2. You cannot make your contract contingent on finding a buyer. That's not a legitimate contingency. That's like making a rental application contingent upon the applicant agreeing to give the landlord a kidney. Not a reasonable contingency right? You cant say to a seller, hey I'm going to go ahead and enter into a legal agreement to purchase your property and prevent you from selling to anyone else but if I cant find someone to buy your house Im going to back out and leave you with nada. There are valid ways to terminate a contract, mostly tied in with the inspection period/due diligence period. But you cant say, hey man I couldnt find a buyer so Im going to terminate. Especially if you want to get your earnest money back. Inspection contingencies are your best bet. You have a certain amount of time to inspect the property and you can terminate within X days of the inspection date. The specifics of this will depend on the language in your contract (purchase agreement) which is why they are so important. 

I hope this makes sense! If there is anything else I can clear up for you please let me know or send me a PM! 

 So there are 2 ways to close a wholesale deal. You are either assigning the contract to your end buyer, which means you put the property under contract with the seller and then signed an assignment of contract with your buyer OR you are double closing, in which case you have a purchase agreement with the seller and another one with the end buyer. 

If you are assigning the contract, there is only one set of closing costs and it is paid by the end buyer. If you are double closing you will be responsible for the closing costs between you and your seller and then the end buyer will be responsible for the closing costs between you and them. You will also be responsible for the cost of the transactional funding used to close the transaction with the seller, but that cost comes out of your fee after you sell the property to the end buyer. 

If you're assigning a contract you should not be paying closing costs, you're not buying the house, you're selling your contract. Therefore your end buyer will pay the closing costs, you just collect an assignment fee. 

This is different if you're double closing, but in the scenario you described with all parties at the closing table, I'm assuming you're assigning the contract.