Real Estate Wholesaling

Real Estate Contract Clauses: What Do I Need Included When Wholesaling?

Expertise: Real Estate Wholesaling, Real Estate Marketing, Business Management, Personal Development, Flipping Houses
65 Articles Written

Wholesaling real estate is the biggest craze since pants with pockets. A lot of people learn about wholesaling, then immediately want to get started. I mean, it's very attractive to hear about flipping houses with no money or credit. However, what's rarely mentioned is what information should be included in a contract. Let me first say I am not giving legal advice. I fudged by way through a business law class in grad school before dropping out. If you want legal advice, it's in your best interest to consult with an attorney. You can ask for a referral from a fellow BiggerPockets member in your area, Google real estate attorney (your city) or get a referral from some one at your local real estate club.

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Out Clauses: The Due Diligence Period

As a wholesaler you want to make sure your contract has out clauses. A popular out clause is the "due diligence period." I normally ask for 30 days, also known as the inspection period. I usually end up closing way before the due diligence period is over. However, I always give myself that cushion, even though at this point in my business, I close on 9/10 properties I contract.

Related: Day in the Life of a Wholesaler: How to Find Sellers, Negotiate Deals & Assign Contracts

Most contracts have a due diligence or inspection period built in. I give myself 45 days to close, with the first 30 days as an inspection period. I’ve seen contracts that last for 90 days, or even 120, and I’ve seen a news story on someone locking up a house with a “forever” closing date. Typically, we deal with single family homes, so in my personal opinion, if you’re giving yourself longer than 45 days, you are just wasting your and the home owner’s time. We are in the business of flipping over contracts, so don’t make it harder than it needs to be.

Now, the reason you do this is because you want to give yourself a period to shop around the property to cash buyers. And in the event you cannot find a cash buyer, you want to be able to legally be able to back out of the contract. Obviously, if you don't do it legally, the home owner could possibly sue you or keep your earnest money if any was put up.

The Right to Renegotiate Price

A second clause that may be worth having is one that specifies a certain dollar amount of repairs, so for example, if the property exceeds $15k in repairs, I have the right to back out or renegotiate price. Instead of putting a dollar amount, you could also say something like, this deal is contingent upon partner’s approval.

I don't use the dollar amount clause or the partner's approval clause. I only use the first clause mentioned, which is the due diligence clause. Many people use the partner approval clause. Remember, once you lock up the deal, you have to get your buyers in the property. I personally educate the home owner that I have to get my money partners in the property because they have to approve the deal. In the event your buyers don't bite, you can tell the home owner that your partners did not approve the deal. Or you can use the dollar amount clause but be careful with that because if you say it requires $15k in repairs and the home owner gets an estimate for $5k from a licensed contractor, you could potentially end up in court trying to prove who is right.

Related: 4 Critical Elements to Master for a Top-Notch Wholesaling Business


In conclusion as a wholesaler you want to do things legally, so be sure to have these proper out clauses in the contract. Simply not picking up the phone anymore is not a legal way to get out of a contract. I’ve noticed when I explain things to home owners up front, it’s never hard feelings when the worst case scenario happens. These clauses need to be explained to the homeowner prior to signing the contract so you don’t catch them by surprise. I tell the homeowner that my money partners and contractors have to get into property to approve the deal before contracting the property. That way, it’s no surprise if I have to get into a property 3 or 4 times. Ultimately the cash buyers are your money partners because without them, the deal does not get funded. Again, if you have further legal questions about the contract or process, you should contact an attorney.

Wholesalers: Which contract clauses have saved you from bad deals?

Be sure to let me know with a comment!

Nasar El-arabi has been involved in real estate for 12 years. During those 12 years, Nasar has wholesaled houses, rehabbed properties, built new properties, created a buy and hold portfolio, and fl...
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    Morris Wilson II Real Estate Broker from Round Rock, TX
    Replied about 5 years ago
    Great post. I love the term “money partners.” Technically, the buyers are your partners because you are working as a team- you find the deal and they buy it. I’m still a newbie and I take integrity in business very seriously. Also, “due diligence” is the period when you research whether the property and the deal at hand. Both are accurate statements when structuring the deal with the seller and I won’t feel bad for saying them. Thanks!
    Maria Hurtado from Claremont, California
    Replied about 5 years ago
    Good points Nasar! I agree… a property should not be held up more than necessary. Letting things sit without forward momentum can gum up the works for you and the seller leading to undesirable outcomes. Thanks for sharing =]
    Kevin Rodriues from Brockton, Massachusetts
    Replied about 5 years ago
    Nice article! Will definitely remember this when working on my first deal. Thanks.
    Jay Johnson from Ruffin, North Carolina
    Replied about 5 years ago
    Another great one! The only clause I have in my contract is the due diligence period.
    Tom Phelan
    Replied about 5 years ago
    I live in Miami and do fix and flips thus I am al;ways looking for the next project. I represent Investors who use their Checkbook Control Self-Directed IRAs for the “All Cash” acquisition and repair of the property. I have given up on using “Wholesalers” because of their draconian dictates, e.g. NO INSPECTION, HUGE EARNEST MONEY DEPOSITS, SHORT PERIOD TO CLOSE (10 DAYS) etc. Also, the word “wholesale” has become a joke as evidenced that I now receive multiple offers for a “hot” wholesale deal from half a dozen different wholesalers and often the property is listed on the MLS by a Realtor. And, I receive daily ’emails about “reduced pricing” on a “hot” deal that has lingered in the wholesaler’s portfolio for months. Whatever happened to a wholesaler being happy to make $5,000 – $10,000 on a $100,000 deal? In my opinion most “Wholesalers” are in fact quasi “Retailers”.
    Joyce & Derek Taylor Investor from Stockton, California
    Replied about 5 years ago
    Great post. This post came out at the right time for us. I’m a new Investor getting ready to do my first contract. I’ve held off being scared of messing up and not getting my deposit back if my cash buyer don’t come through. I’m going to print this out and take it with me. Thanks again, for sharing your information !! Joyce
    Rod NA from Elk Grove, California
    Replied about 5 years ago
    In California we have 17 days to do diligence already in the contract. The problem I ran into when I include “contingent on partners approval”, the Listing agent wants that removed. Also, when I Wholesale and make an offer on a house that has been on the market for 245 days, I get a multiple offer situation from the Listing Agent. The Gatekeepers are in full swing that’s for sure!
    Jared Stasch
    Replied about 5 years ago
    Then add an addendum to your contract. Those contracts can be changed and manipulated to how you would like. I know they say the Standard California Contract, but a contract can be written on napkin and still be legal.
    Replied about 5 years ago
    Thank you Jared! I didn’t know about the napkin! Any suggestions on the Gatekeeper Realtors who claim there are multiple offers when a house has been sitting for 245 days? Then later the house is still Active. Thank you!
    Cornelius Charles Investor from Oxnard, California
    Replied almost 5 years ago
    Hey Rod. Just wanted to make sure that you know that you don’t have to stick with the 17 days that are written in the CAR residential purchase agreement and that you can adjust that as need be in the contract. As for the multiple offers, why don’t you just submit your offer anyway at the numbers that work for you? The more offers you submit, the better the chance that one will get accepted.
    Tom Phelan
    Replied about 5 years ago
    Rod, Good point about phantom “multiple offers”. Here’s another Realtor trick, you call to arrange a showing and the Listing Realtor informs you, “Gosh, the property just went under contract today, too bad, how sad”. You diligently check the MLS everyday to see if a “PS” (Pending Sale) has replaced the “A” for active. Nope. So after a week or so you again call the Listing Realtor who says, “Gosh, that deal fell through but guess what, the property just went under contract again”. Oh how I wish we could contact the Owner of the home directly so we could get a straight answer.
    Replied about 5 years ago
    I like that, “phantom” multiple offers. I follow the listing and it stays Active. I really don’t understand the Agents who do that. Thank you for the insight!
    Tony Hernandez Lender from Chicago, Illinois
    Replied over 3 years ago
    Scenarios like this possibly represent unfair and deceptive business practices. There are laws against this type of activity. remember if it is advertised as active. Therefore it is my recommendation as a fraud examiner that you record your activity by saving screen shots and also with quicktime record your searches. Print out your findings with time stamp. Then contact the realtors and reiterate the law regarding listings in your state. You need to look up the law in your state regarding listings and advertising. Explain that you feel that they are possibly false advertising or are misrepresenting the truth based on that advertising and that this makes them liable. You acn also get in contact with the borsd of realtors in your neck of the woods and or the department of financial and professional regulations. The point is that if you want you can without any out of pocket expense get the authorities to vet out this persons claims. The next time you put in an offer or inquire that person will know not to lie to you.
    Zachary Clough from New Bedford, Massachusetts
    Replied almost 5 years ago
    Hi Nasar- I like the idea of a 30-day home inspection contingency period. I also like the idea of having a contingency that states “this deal is contingent upon partner’s approval” as opposed to specifying that you can renegotiate price if the property requires a certain dollar amount of repairs. Like you mentioned, that could potentially get messy if a homeowner obtains a quote far less than yours and decides to take you to court. Here are a few others that could potentially be helpful: -“Seller understands that Buyer intends to find an End-Buyer and assign this Agreement to End-Buyer for a fee (to be paid by End-Buyer). -“Seller grants Buyer access to the above property for showing to prospective buyers, contractors, or appraisers, along with the right to put signage in the yard advertising the property for sale.” -“If Buyer does not acquire an End-Buyer within 45 days of acceptance of this Agreement, this agreement becomes null and void.” Do you hold a real estate license by any chance? Whereas I’m also a licensed agent, it’s important that I make it very clear to all parties in the transaction that I am acting on my own behalf. I like to disclose that fact with the below contingency so it doesn’t present an issue down the road. -“Seller understands that Buyer is acting as a principal in the transaction and is not working as a real estate broker representing anyone other than him in the transaction, though he may hold a real estate license.”