What happens if a wholesaler can't find a buyer?

Question

I've been reading more (and listening to many great BP podcast episodes) about wholesaling as a strategy but I'm curious as to what happens if the wholesaler is unable to find a buyer. Does the deal simply fall through? Does the wholesaler have to pay the seller a fee? Is that detail negotiable e.g. could vary by state, by deal, by savvyness of the seller and/or wholesaler?

Eliott Elias · Answer

Depending on where the buyers are in the contract, they will lose their earnest or option money.

Jose Jacob · Answer

Raj,

Its all depends on your contract. Make sure you have good cancelling clause in your contract to get out easy in case if you cant find a buyer. Have your attorney write up a contract which favors you. I am not sure about CA law. Try to find properties like 60-70 cents on a dollar. It will be easy for you to sell to the end user.

JD Martin · Answer

What happens? The wholesaler buys the house. That's what happens in honest dealings. In reality what happens is the wholesaler bails on the whole thing - there's often some kind of catch-all cancel clause - and they just move on, which is why a whole lot of wholesaling is unethical and often illegal.

Randall Alan · Answer

@Raj Ajrawat

The wholesaler has to put down an escrow deposit. If they don’t come up with a buyer they would forfeit their deposit - IF (key word) that is what their contract said. It is what the standard FARBAR contract says… but many wholesalers use their own contract which gives them all sorts of outs… options to extend, etc. So it is really just a matter of what the contract calls for. Frequently wholesalers will put some (stupid low) dollar amount like $100 on their contract. They are usually not dealing with realtors who would protect a seller and insist on $1,000-3,000 in escrow for a typically priced house.

Wholesalers get more motivated to find a buyer the closer their contract gets to expiring…. They will negotiate into what was going to be their profit margin if it means getting a deal done. I’ve made a few thousand dollars off a wholesaler when they couldn’t sell our property on time. I’ve also figured out after the close that a wholesaler was trying to make $10,000 on a desk we were the only buyer on. We negotiated a $5,000 discount because they were about to lose the deal due to expiration. They still made $5,000 so they did ok.

All the best!

Randy

Raj A. · Answer

Very useful Eliott and Jose. I'm assuming the wholesaler as the buyer would offer the seller earnest and/or option money (depending on state, contract language, etc.) but would an end-buyer also potentially enter into earnest and/or option money as well? In some of my research I'm seeing earnest money is usually calculated as a percentage of purchase price (1-2% seems normal?) but are there ever cases where it's a set amount vs. %? Also, seems like option money is usually a set price vs. % of purchase price, so I'm curious if there are "industry standard" norms for that amount.

Raj A. · Answer

Super useful Randy; thanks for this. I'm going to research whether or not CA has "standard clauses" for wholesaling but so far I haven't come across anything like this.

What happens if a wholesaler can't find a buyer?

What happens if a wholesaler can't find a buyer?

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