BiggerPockets

Hey John,

I'm still kind of new to wholesaling, but I'll take a crack at it. I'm sure someone who is more seasoned will reply and I'd like to see if we'll be on the same page.

I believe that much of this scenario depends on the type of contract that you use and the time that you allow to pass by.

For example, if you use a flex contract, it allows the seller to market their house while you market it as well. So if they find a buyer before you, no harm no foul, except for the time you've spent.

On a straight option contract as well as a flex option contract, most seasoned investors will use a clause that will allow them to backout of the contract in the event they are unable to wholesale. One of the main ones that I have seen is something like:

"This contract is contingent upon buyer's inspection period of xx days."

If you haven't gotten the house assigned by the end of the period specified, then you can advise the seller that the home did not pass inspection by your "partner" and any EMD is refundable.

With that said, from what I've seen, most investors here don't give an earnest money deposit. Their contracts are specifically written that way. Or, if they do give a deposit, it is minimal, such as $10 or $100.

Regarding how often this sort of thing happens, I'll leave that for someone who has a good amount of experience to answer for you.

Either way, good luck in your new ventures.

Danielle C.

John-

An inspection clause gives you the right to inspect the property within a certain period of time and if you find something that you did not originally know (for example, mold in the attic), then you can either ask for further reduction in price or walk away.

The "as-is" addendum simply means you buying the property in its current condition, the bank will not fix anything. It does not remove your right to do your own due diligence.

Now on to your main question. If you cannot find a buyer, its not a good deal and you should know what a good is before you submit an offer on a property. Walking away from banks is a great way to ruin your reputation with banks and agents. If you can't close then you shouldn't accept the offer. But if you want to ignore my advice, and I don't mean that to be rude, most people do ignore me, then you want to employ a 10-day inspection period. I HIGHLY encourage you though to not abuse your inspection period. Your offer to the bank gets weaker when you have a bunch on contingencies in your offer.

If I were you, I would first find my buyers and only put in offers that meet their criteria. This does a few things for you:
1. You can probably put in a stronger offer. For example, your buyer says I want props at 80-90K. You can confidently put in offers in the 70K range know you can close.
2. You do not waste your time or other people time putting in offers on houses that you know you can't close.
3. You build a reputation as someone who closes. The banks know that when you submit an offer its serious and they will take you more serious.

Thanks for your answer Justin.

I was also trying to verify that an "as-is" offer at 50k is more likely to be accepted by the bank as compared to an "10 day inspection clause" offer at the same 50k, correct?

Thanks for that Justin. By the way, I love the layout of your website. Who designed it?

John C:
I too am just starting out at wholesaling. The thought of going to a back to back closing and not have a buyer was a great fear of mine too both in lost time and money as well as hurting my reputation. I ran an ad in Craigs List and within 4 days got 3 buyers. They told me exactly what they wanted (in terms of how much rehab they were willing to do, what areas, and how much they want to spend. I have to size up the costs of rehab when I see the properties and make sure my offer to the bank is enough for my buyers to make money asa well as me. If the buyers don't think they will make money then they won't be buyers and then Im stuck with a property.

I was wondering though what contigencies to put in a offer on an REO so your post and thd subsequent answers were great! What Wheelhouse said about the inspections is certainly educating. Good luct. I am anxious to see how it goes for you.

Doug

Wow Steve,

I did not realize that an inspection report was needed to back out.

I have not dealt with an REO property yet (I have the same concerns John has), but this is the first I have heard of this requirement. Is this required everywhere?

Not all banks have that verbiage in their addendums. It is very rare for me to have to back out of a contract, but when I have, I have never had to provide an inspection report. In fact, in most cases where I did back out, it was my contractor who pointed out some hidden repris that were quite expensive. Due to this, my offer would have to be reduced or I would need to back out. I have never had a problem getting my EMD back. Again, this is in CA, and with the contacts I deal with. This may not be the case for everyone.

John,

You can not back out of a bank owned deal. In order for the bank to accept your offer you will need a proof of funds letter and put down $1,000 in earnest money. Typically you get 30 days to close. If you do not close you will loose your money. When buying a bank property make sure to do your inspections before you lock it up. When dealing with the banks your entering the big leagues of investing. You might consider locating FSBO and assign those. There is no risk involved in doing that.

John,

You can not back out of a bank owned deal. In order for the bank to accept your offer you will need a proof of funds letter and put down $1,000 in earnest money. Typically you get 30 days to close. If you do not close you will loose your money. When buying a bank property make sure to do your inspections before you lock it up. When dealing with the banks your entering the big leagues of investing. You might consider locating FSBO and assign those. There is no risk involved in doing that.