Since I don't have the resources to fund every deal I come across, I've been doing some research on wholesaling/birddogging. It appears that there are two basic ways to do this.
Contract Assignment As I understand it, this is where you simply sell your assignable purchase contract to the end buyer. They pay you a fee for the contract, and then continue on to purchase the property directly from the seller. In this case, the buyer would be responsible for taking care of all the closing arrangements.
Double Close I'm going to include simultanious closings in this catagory. Again, from my understanding, and limited personal experience, the wholesaler gets the property purchase lined up, gets the buyer lined up, arranges the closing, takes care of all the little fires that come up, etc. The buyer basically just has to show up at the closing table with money.
So my question is to those who have actually used wholesalers. Do you prefer to purchase the contract, or to do a double close? Would you expect to pay the wholesaler more to arrange a double close than for an assignment?
Hi Marc,
The decision to assign or double close is not left up to the buyer. The buyer is buying because he or she got a deal they're happy with. It works out the same for them either way: they show up at closing with money and leave with keys.
You, as the wholesaler decide whether you want to assign for simplicity, or double close to "hide" your fee. As someone who wholesales, I can tell you it's easier to assign. As someone who has bought from a wholesaler, I can tell you that I was just happy to have the deal I wanted
Thanks Edward. I understand the decision is mine, I'm curious if use one method over the other may lead to more buyers. I'd like to make things as easy as possible for my buyers, but at the same time, be compensated for my time and effort. If there's no financial benefit to doing a double close, then I'd prefer to assign.
Do you use the same strategy with each deal, or is there something that causes you to choose one over the other? The amount of your spread perhaps?
The amount of the spread is certainly one reason to want to "hide the fee" with a double close instead of an assignment. Another reason is if you are buying from an institution you need to use the double close or simultaneous close because most banks won't allow assignment fees in their deals. You can use a transactional funding company and pay a fee to use their money for a day.
Joe is exactly right. We haven't worked with REOs yet, so I haven't had any institutional opportunities, but I know that's correct.
It is the spread that would cause me to use one strategy over another. Over 10k and folks start to think they're not getting such a good deal. Funny thing is, if they dont know my fee, they are otherwise happy.
As far as the ease for buyers, I can't think of one example where I may use the type of closing itself as a feature of the deal. I market my properties based on the strength of the deal alone. That the closing comes quickly, that's appreciated, but which document they sign? I generally don't care when I'm buying, do you?
I can appreciate that sentiment Edward. To me, the hassle of arranging the closing would be something I'd rather the wholesaler do, if I was paying a middleman.
And there's another beautiful thing. Once I have the buyer lined up, I simply drop off the signed contract and the assignment to the title company. They arrange the closing on the date agreed upon. Once I've dropped off paper work, I'm done. The escrow officer usually calls me a few days prior to remind me to come get my check. Neither myself or my buyers arrange closing, we just agree on a date and the title company does their thing. There is a large benefit derived from a good relationship with your title company.
As a purchaser of wholesales I prefer a contract assignment for two reasons.
Number one: with underwriting restrictions these days, when I go to resell the property I don't want to muddy the chain of title with a history of "flipping" due to a double close. May or may not be an issue, but I'd prefer to keep the chain of title clean so I don't have to find out the hard way.
Number two: if my wholesaler is double closing that means there are additional fees that are to be paid, whether they eat the additional costs or I do, it's less profitable for one or both of us. The more money that myself and my wholesaler make the more likely we are to do business again in the future.
That makes a lot of sense Edward. My Realtors have always arranged my closings, so I guess I really didn't know there was so little to it.
Thank you Andy. You make excellent points. How much money do you think is "too much" for a wholesaler? Or does it not matter to you if you're still getting a deal that meets your criteria?
I don't think any amount is too much, if the numbers work for me then I'm happy on my end. If it's a really great deal then I would hope some of those savings to be passed along, for example if a wholesaler has a contract for $40k and the wholesale value is $70k, then I would hope to get it for a few grand under $70k as an act of good will........or at least buy me lunch.
However, if I find a wholesaler is getting a killer deal and they're trying to squeeze every last nickel by overpricing the sale, overestimating ARV, or underestimating the repairs then I'm going to be quite upset.
The amount of the spread is certainly one reason to want to "hide the fee" with a double close instead of an assignment.
Of course this is only a temporary "hide" of spread. After they close, they can look up title and see what you paid for it and then what they paid for it.
Another reason is if you are buying from an institution you need to use the double close or simultaneous close because most banks won't allow assignment fees in their deals.
Exactly right. Banks do not allow "assignemnts of contracts" without written consent on REO or short sale properties so a double close is necessary in most cases.
There are several other methods to wholesale without double closing and without "assignments". I believe there is a thread on that very topic.
One method is to make offer in a new entity you form and then sell the entity to yoru buyer. The other is to add an additional buyer to contract and then quitclaim your portion after close for your fee. The third is to form a trust and sell your beneficial interest in teh trust, much like selling teh entity.
Will Barnard, Barnard Enterprises, Inc. E-Mail: info@barnardenterprises.com Website:http://www.barnardenterprises.com info@barnardenterprises.com
And another that Will left out is the tactic of "conditional release of contract", where one of the conditions is that the seller enter to an agreement with buyer to purchase at whatever price was agreed. I posted more regarding this in another thread.
Not necessarily. I have run into buyers that are so unfamiliar with trusts that it scares them away. If your end buyer has never dealt with you, it may be difficult to have them agree to accept the quit claim after close (how do they know you will). Other buyers strictly want a double close scenario so they can have a standard escrow and pick their own title/escrow company. Buyers choice at times, other times, seller makes the call.
Will Barnard, Barnard Enterprises, Inc. E-Mail: info@barnardenterprises.com Website:http://www.barnardenterprises.com info@barnardenterprises.com
Will, sorry if I'm missing something obvious, but wouldn't the buyer be able to do a standard escrow and choose their own title company with an assignment?
Think you guys covered it, but if I buy I want a warranty deed (unless i's direct from th lender) as Will mentioned. This can be a key point in your justification for a higher price as well,
By agreeing to a price with your buyer you can give them the option of how to close in many cases. Depending on the sources of funds for your buyer, it can make a difference....nothing should be cast in stone as deals are put together based on the circumstances....good luck!
Thanks Bill. I've only ever done one double closing, and as I mentioned, my Realtor put that all together.
My original intention with this post was to determine if, while setting up my buyers list, it would be helpful to mention that we do one method over the other. Or, which would sound better when explained to a buyer unfamilure with the process.
The only things I would mention is that in regards to the "hiding of your spread/profit". I don't think "hiding it" is in your long term interests. As Will said, it is only hidden temporarily. The buyer will find out. As a wholesaler, you want your buyers to be frequent buyers from you. If you are secretive and try to take too much out of the deal or hide it, they may not be coming back.
I think it is better to be open and professional. You deserve a reasonable fee/profit for your work. The buyer knows that. Just tell them and build some trust.
Second, while a buyer may not care what style of closing or what entity you use to purchase, etc., if your buyer is getting financing, it is very possible his lender will care. You must be aware of that.
Thanks Eric. I have no intentions of hiding anything. I plan on using wholesaling only as an additional stream of income, and will do my best not to make anyone feel cheated by my take.
I also appreciate the insight as to the closing. I assume that an assignment is way cheaper than a double close, but are there any of Will's methods that strike you as being even better?
That is only true if you are in a disclosure state. A non-disclosure state, like Texas, does not have any public record of sales prices. You can't find any public data on how much I paid for any of the houses that I've double closed on (except the ones I bought via the MLS).
This is not a viable strategy in at least Texas. Quit claim deeds are worthless in Texas. Title companies do not recognize a quit claim as a valid transfer of title.
The bottom line is when wholesaling, assign the contract unless you need/want to do a double closing. Double closings are necessary for REO's and short sales, and they mask from the buyer how much you are making.
I completely disagree that your investor buyers don't care what you are making as long as its a deal. That's completely not true. Human nature dictates otherwise. Some investors will freak out if they see you making even $2,000.
The threshold for how much profit is too much depends on the property, your market, and your ability to communicate your value to your buyers.
If the property has a lot of profit built in then you can sustain showing a higher fee. If the house is a $200,000 house or your market is predominantly $300K+ houses, then showing a $10-20K profit might not be an issue for your buyer. If you're dragging a homerun on a $40,000 house and making a $20,000 fee, but your buyer completely understands that and is ok with the value you brought to the table, then disclosing your profit is not an issue.
In reference to the buyer's preferences, it doesn't make a difference. The experience shouldn't change for the buyer.
Let's be clear that whether you are assigning a contract or double closing it, I would HIGHLY recommend that you babysit the closing as much as you need to. Yes, a good title agent will take care of it for you, BUT I still do check in with my title agent to make sure everything is moving along. If its not, I will jump in as much as I need to. Its MY money and if I want to get paid, I need it to close, so I make sure it does.
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