I’ve been in the REO wholesaling arena for several years now, and as a result, have received many emails from aspiring wholesalers who have questions about the process of flipping bank owned properties. Following are answers to some of the most frequently asked questions that I have received about REO wholesaling.
- Can I add “and or assigns” after my name on the purchase contract and then assign it to my end buyer?
No! The majority of the bank’s addenda will include verbiage that prohibits you from assigning your purchase contract. There are several ways around this, however, which I have detailed in a 5 part series that you can read here.
- Do I need an earnest money deposit when making an offer on an REO?
Yes! When making offers on REO properties, you will need an earnest money deposit to submit with your offer. $500-$1000 will usually suffice, although some of the banks will ask for more. Offering a large earnest money deposit is a great way to make your offer stand out, so if you have the funds available and you want to get the bank’s attention- offer a big deposit!
- Do you tell the listing agent that you are wholesaling the property?
I don’t recommend telling the listing agents that you plan on wholesaling the property once you have it under contract. Just make sure to honor the contract that you signed and get the deal to the closing table. It is not necessary to divulge the details of the second transaction to the listing agent.
- If I put an REO property under contract and can’t find a buyer, can I just back out using my inspection contingency?
Yes, you can do that, but it’s not something I recommend. If you sign your name on the contract, then you should be prepared to follow through whether your buyer backs out or not. If you make a habit of putting properties under contract and then backing out of them, you will develop a bad reputation with the REO agents in short order, and your offers will soon find their way to the round file.
- Once I have an REO under contract and am marketing it to end buyers, what should I say when they ask me if I own the property?
Tell them the truth- that you have the property under contract and will be purchasing it from the bank on the same day that you are selling it to them. There’s nothing wrong with what you are doing, so there’s no need to lie!
Hopefully this article finds it’s way to those of you who are interested in wholesaling REO properties. If you have further questions about the REO wholesaling process, feel free to post them in the comments section and I’d be happy to answer them for you!
Photo: Laura K. Gibbs
Article Author: Stephani DavisStephani has written 47 articles for us.
Visit Stephani's Website: http://www.flipthiswholesaler.net/
Formerly a bartender, Steph Davis is now a full time wholesaler in Tampa, FL. If you'd like to get an idea of what it's really like out there in the trenches, head on over to her blog: FlipThisWholesaler.net!
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{ 7 comments… read them below or add one }
Never dealt with a REO Flip. I want to do a deal with a fellow wholesaler and he just got a REO property under contract 12/09/09 . He doesnt have any buyers at this time and the property is 50% ARV 12 K cosmetic rehab from my inspection and price. My question is how can he assign me his contract (from reading REO’s are much different). I have a buyer ready but I would much rather get my wholesaler fee instead of a referral fee if possible.
thank you JeVon C.
Hi JeVon,
You won’t be able to assign the bank’s contract, so you would have to do a contract between yourself and the other wholesaler, and then assign that contract to your end buyer. There will be two separate purchase contracts, and two separate closings.
Make sense?
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Steph, I understand that it’s important to follow through on a contract in the event you don’t find a buyer… So are you suggesting that the wholesaler buy the property themselves and hold on to it until they can find a buyer? What do you do when you can find a buyer?
.-= J. Lamar Ferren´s last blog ..Should We Continue Marketing Through The Holidays or STOP Now? =-.
I mean…Can’t find a buyer
.-= J. Lamar Ferren´s last blog ..Should We Continue Marketing Through The Holidays or STOP Now? =-.
For me personally, I don’t put anything under contract unless I am 99.9999999999% sure I can sell it. I know my end buyers well, and I know exactly what each one is looking for in a deal (I don’t have a huge buyers list, I just concentrate on a handful of active cash buyers at a time). Many times I will call them up and run the numbers by them while I am still negotiating with the bank/seller to see if it is something they would be interested in.
I have back up funding in place (a private investor) in the event I can’t find an end buyer, but I’ve only had to use it once when my end buyer backed out of a deal the day of closing.
Not sure if that answered your question….
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Is there a way to circumvent the “earnest money ” request made by the bank ,or would a POF letter suffice ? If both are needed,then what…if you’re broke?
Hi Robert,
You will need an earnest money deposit if you want to offer on REOs. They don’t cash the check until after the offer is accepted, though. You can also write into your contracts that the EMD will be deposited upon acceptance and ratification of offer.
Hope that helps,
Steph
.-= Stephani´s last blog ..Another Deal and a Word About Persistence =-.