biggest fear!!!

[Leander Henderson]

I'm new to investing and I've been thinking about doing some contract assigning to start out and build some capital, but I have this major hurdle that I need answered. What happens if I get a house under contract and cannot get a buyer to accept and close the deal? What am I responsible for? Is there a way out of the contract after a period of time or am I stuck with coming up with the funds to close this deal?  HELP!!! 

[Mitch Messer]

Hi @Leander Henderson, welcome to BP!

I consider answering your question an act of karma: I myself asked the very same question of the great Ron LeGrand some 15+ years ago...

When you do (finally) get a seller to sign a contract, you will offer them something of value to seal the deal and demonstrate your commitment to close. This usually takes the form of a monetary payment, called earnest money. You and your seller will agree on how much earnest money you will pay. Let's say it's $100.

Your contract would declare that, should you should fail to perform, you would forfeit your earnest money. So yes, if you were to fail to purchase the property, you would lose $100.

Although, not really... That's just the worst-case scenario, because:

• Your contract should have an inspection clause that gives you the right to inspect the property and to cancel the contract (and reclaim your earnest money) if you don't like anything about the property; and,
• In most cases, you will get to set the amount of the earnest money you pay. You'll want it to be low: I've seen amounts as low as $10; and,
• The earnest money doesn't have to be (in fact, shouldn't be) cash. And, since the earnest money will be held by a party determined by the contract, you could theoretically write a check, send it to your friendly closing attorney as per the contract, and let it sit there uncashed until you close. Or, until you cancel the agreement and have them tear up the (uncashed) check.

Hopefully, you see that with the right contract and training, you can't really be hurt by signing a contract. This question is all about fear, or at least it was for me back then. Fortunately, the best antidotes to fear are knowledge and action.

I encourage you to get out there and start getting some contracts! Then come back and tell us how that went...

Good luck!