Backing out of a wholesale deal?

47 Replies

Hello BP community. I am new to wholesaling homes in the Maryland area so at the moment I am trying to make sure I have all the proper information in order to complete a deal successfully. If I put a house under contract only to find out that there is no one willing to purchase the home, how would I back out of the wholesale deal. Is there certain text that needs to be in my contract? Is there costs for backing out of a wholesale deal? I am not aware of the specific text that needs to be in my contract that will enable me to leave a deal at any time.

@Harlan Cox

Welcome to BP!  You are in the right place to learn wholesaling.

Yours is a great question and the answer is yes.  You should put some "wiggle" language in your contract that allows you to back out if there is a serious problem or you are unable to find investors.  It could be as simple as a financing, inspection, or feasibility study contingency, or you could just limit any recovery for actions in breach to the value of your earnest money deposit, meaning you would surrender that deposit if you back out.

That being said, I would encourage you to position yourself to make the deal work before putting a house under contract.  Get your financing lined up in advance.  Have the money available whether it is your cash, a private lender, or a bank contact.  Then look for the devalued properties that you can add value to.  

While getting a property under contract and then shopping it around to wholesalers requires very little risk, it is also a sure fire way to develop a bad reputation.  If you waste investors' time by shopping them properties that are overpriced, they will not take you seriously and dismiss your future deals without consideration.  If you cause the property owner a delay and don't help them with the problem they are trying solve by entering into a contract with you, they will dislike you and probably give you a bad recommendation/review.

My advice is be careful and be patient.  Do your homework and find a property that will be a winner to start with.  That will make it much easier to get your second deal at the right price.

Good luck!   

@Harlan Cox

Welcome to the vibrant BP community. Your time here will be well spent.

@Brian Tome gave you some good advice and I have added a guide on wholesaling below.

https://www.biggerpockets.com/renewsblog/2015/01/31/ultimate-beginners-guide-real-estate-wholesaling-2/ (Ultimate beginners guide to wholesaling)

Now that you have made the move, below are some links that will help with the navigation of the site.

https://www.udemy.com/biggerpockets-real-estate-investing-course/ (video with 64 lectures and approx 6hrs of material)

https://www.biggerpockets.com/real-estate-investing (Ultimate beginner's guide to REI)

Before your 1st purchase, please ensure you visit the below link for some tips.

https://www.biggerpockets.com/renewsblog/2014/12/19/real-estate-investing-success-smart-tips/

REI books suggested by BPers

https://www.biggerpockets.com/renewsblog/2015/11/13/7-real-estate-books-beginner-investors/ (7 absolute must read books for beginner REIs)

http://www.biggerpockets.com/renewsblog/2013/04/14/best-real-estate-books/?utm_source=search&utm_medium=internal&utm_campaign=books (books recommended by BPers)

Simply, bone up on the areas that you need to expand knowledge in such as, Forums, Marketplace, Learn, Network, Analyze and Resources.

Feast on the Podcasts, #askbp Podcasts, blogs and webinars

Lastly, this site thrives on interactions and as such we encourage two way exchanges and look forward to educational, thought provoking ideas relevant to REI.

You received some valuable information from the two investors that posted before me! I learn a great deal of information from the podcasts too. The guests (as well as the hosts) provide great insight and key tips from their own experiences, and I "cheat" by looking at the titles and summary to see if the information within the podcast is related to where my questions lie. Don't cheat yourself though, every podcast held valuable information, tools and 'secrets' that I learned a lot from, and some indicated information that I wouldn't expect based on the title itself. BP holds a lot of information, and you are wise to ask questions and to leave comments on this forum! Best of hope to you!

Stephanie Dobbs

Are you leading the homeowner to believe you will purchase the house? Are you informing them that you intend to assign the contract and if you cannot that you will walk away?

@Brian Tome yes! That is exactly what is wrong with many of these "wholesalers". Expanding a little on this, in Florida the state is going after many of them for advertising property they don't own. They are being given bad information and acting accordingly. www.myfloridalicense.com has a link to report unlicensed activity. You can also look to see if someone has had complaints filed against them for unlicensed brokering. I see a lot of these guys doing that on the BP marketplace. I wonder if the state will catch on and start looking in the marketplace to make cases against unlicensed brokering. Our local REIA is having the DBPR come speak early next year. Hopefully some of these issues will be addressed. These "wholesalers" can defend the practice...but the truth is many homeowners are victimized by these operators. IMO, if you sign a contract to purchase, there is no need for more than a 5 day inspection period. It passes and you close, or it fails and you tell the seller "pass". All of these scammers using 30, 45, 60 day inspections are bad for the industry. Their actions build distrust and disdain for people that operate in an honest manner. Entering any contract with deception and lies is BAD business no matter the industry involved.

Brian, on BP we are collectively against deceiving other parties, BS clauses or weasel clauses really don't work in courts. 

If you lay your hand to any contract, be prepared to defend yourself and enforce your contract to the end, at all times, otherwise don't get into contracts of any kind.

Very good advice on getting financing lined up and knowing if your buyers will be interested before you contract!

Wholesalers need to learn how to take an ownership position avoiding the legal issues.

Wholesaling, the way most go about it is not low risk! Their conduct can easily be tortuous conduct, getting sued, fined for license violations, banned from RE dealings, and, if they don't have the means to carry out the contract, some might say fraud. 

There are 3 ways to take title, all with little or no money down, they simply lack enough drive to become properly educated. All aboard the Guru Train the Circus is in the last 3 cars, clowns and all. LOL  :)

At the moment there have been few prosecutions of those calling themselves wholesalers and acting disreputably.  The proliferation of "practioners" is getting the attention of the licensing boards of several States. Once an Attorney General or two joins the fray wholesalers may change their mind about the risk profile. At the moment, I would agree that is not likely that a "wholesaler" will be fined or prosecuted in most jurisdictions. However, the consequences if you are chosen as a test case are serious--potentially life changing. I also think that it will become more and more likely that individuals will come before boards in the near future. Remember, there is an army of licensed Realtors out there, many of whom think this is their turf and are more than happy to give the licensing departments a call when they see people practicing without a license. So, as Clint Eastwood once said, do you feel lucky?

Originally posted by @Jeff Rabinowitz :

 So, as Clint Eastwood once said, do you feel lucky?

 I think that line was: "You've gotta ask yourself one question. Do I feel lucky? Well, do ya punk? 

The "punk" puts a entirely different flavor to it than just asking if someone feels lucky, like buying a Lotto ticket, do you feel lucky? 

That's right,.... the most powerful handgun in the world ...... LOL  :)

@Bill Gulley , I was paraphrasing (I did not use quotation marks) and assuming that most people would understand the reference. I usually feel a joke, pun, what have you, loses it's impact if you have to explain it. Yes, I chose the word impact purposefully.

Originally posted by @Jeff Rabinowitz :

At the moment there have been few prosecutions of those calling themselves wholesalers and acting disreputably.  The proliferation of "practioners" is getting the attention of the licensing boards of several States. Once an Attorney General or two joins the fray wholesalers may change their mind about the risk profile. At the moment, I would agree that is not likely that a "wholesaler" will be fined or prosecuted in most jurisdictions. However, the consequences if you are chosen as a test case are serious--potentially life changing. I also think that it will become more and more likely that individuals will come before boards in the near future. Remember, there is an army of licensed Realtors out there, many of whom think this is their turf and are more than happy to give the licensing departments a call when they see people practicing without a license. So, as Clint Eastwood once said, do you feel lucky?

 The consequences of being charged with brokering without a license in Florida are not necessarily from a criminal standpoint. That is possible. The state classifies this as a felony. Another consequence should they not prosecute is a cease and desist order and a civil fine. If someone has this occur, it may forever bar them from practicing real estate. If you love this business, love the opportunities, etc...stay within the law. We have two locals that the state has found complaints against them to be legally sufficient. Their names appear on the state website where you can look up complaints for unlicensed activity. No matter the end result, having this as a public record with ones name attached is very negative and may affect their ability to do business even in a lawful manner. I don't know either party, but under no circumstance would I deal with them.

Originally posted by @Jeff Rabinowitz :

@Bill Gulley, I was paraphrasing (I did not use quotation marks) and assuming that most people would understand the reference. I usually feel a joke, pun, what have you, loses it's impact if you have to explain it. Yes, I chose the word impact purposefully.

 Yes, LOL, I got it.

Impact, yes, the most powerful handgun in the world....LOL

Now, if I pull the trigger and this blows up on me, then what, gotta ask another question; do I fee lucky?  :) 

@Bill Gulley - Respectfully, protecting your right to back out of a contract in the event you are unable to finance or the property has problems is neither "weasel language" nor deceptive and courts will most certainly follow the language of a contract if it is drafted correctly and signed by the party against whom it is being enforced.  I litigate them regularly.

I am not and would not encourage @Harlan Cox to deceive anyone.  That was the reason for my advice in the first place.  I would encourage him to get the advice of a contracts attorney in his area and deal fairly with everyone he works with.

Originally posted by @Brian Tome :

@Bill Gulley- Respectfully, protecting your right to back out of a contract in the event you are unable to finance or the property has problems is neither "weasel language" nor deceptive and courts will most certainly follow the language of a contract if it is drafted correctly and signed by the party against whom it is being enforced.  I litigate them regularly.

I am not and would not encourage @Harlan Cox to deceive anyone.  That was the reason for my advice in the first place.  I would encourage him to get the advice of a contracts attorney in his area and deal fairly with everyone he works with.

I totally agree, a standard financing contingency is all that should be needed, I think you mentioned other "exits" like inspections or something along those lines. Such only go far, being significant, not some petty infraction or partner approval many wholesalers like to rely on. Yes, courts usually don't modify a contract, but can when terms are so far from the norm, not serving the public, etc. etc., not impossible to get a contract thrown out when a no money, no ability to perform guy tries to tie up a property and fails to buy as agreed. All while giving a seller the impression they are buying. 

So, are you saying you are a practicing attorney? If so, great, you probably have some great stories!  :)   

Originally posted by @Jeff Rabinowitz :

At the moment there have been few prosecutions of those calling themselves wholesalers and acting disreputably.  The proliferation of "practioners" is getting the attention of the licensing boards of several States. Once an Attorney General or two joins the fray wholesalers may change their mind about the risk profile. At the moment, I would agree that is not likely that a "wholesaler" will be fined or prosecuted in most jurisdictions. However, the consequences if you are chosen as a test case are serious--potentially life changing. I also think that it will become more and more likely that individuals will come before boards in the near future. Remember, there is an army of licensed Realtors out there, many of whom think this is their turf and are more than happy to give the licensing departments a call when they see people practicing without a license. So, as Clint Eastwood once said, do you feel lucky?

Your making wholesaling appear to be an illegal act or something. From my knowledge your are able to legally wholesale in a state if your contract has the proper contingencies. What trouble could I get into if I'm not licensed?

Originally posted by @Jeff Rabinowitz :

At the moment there have been few prosecutions of those calling themselves wholesalers and acting disreputably.  The proliferation of "practioners" is getting the attention of the licensing boards of several States. Once an Attorney General or two joins the fray wholesalers may change their mind about the risk profile. At the moment, I would agree that is not likely that a "wholesaler" will be fined or prosecuted in most jurisdictions. However, the consequences if you are chosen as a test case are serious--potentially life changing. I also think that it will become more and more likely that individuals will come before boards in the near future. Remember, there is an army of licensed Realtors out there, many of whom think this is their turf and are more than happy to give the licensing departments a call when they see people practicing without a license. So, as Clint Eastwood once said, do you feel lucky?

Your making wholesaling appear to be an illegal act or something. From my knowledge your are able to legally wholesale in a state if your contract has the proper contingencies. What trouble could I get into if I'm not licensed? 

Originally posted by @John Thedford :
Originally posted by @Jeff Rabinowitz:

At the moment there have been few prosecutions of those calling themselves wholesalers and acting disreputably.  The proliferation of "practioners" is getting the attention of the licensing boards of several States. Once an Attorney General or two joins the fray wholesalers may change their mind about the risk profile. At the moment, I would agree that is not likely that a "wholesaler" will be fined or prosecuted in most jurisdictions. However, the consequences if you are chosen as a test case are serious--potentially life changing. I also think that it will become more and more likely that individuals will come before boards in the near future. Remember, there is an army of licensed Realtors out there, many of whom think this is their turf and are more than happy to give the licensing departments a call when they see people practicing without a license. So, as Clint Eastwood once said, do you feel lucky?

 The consequences of being charged with brokering without a license in Florida are not necessarily from a criminal standpoint. That is possible. The state classifies this as a felony. Another consequence should they not prosecute is a cease and desist order and a civil fine. If someone has this occur, it may forever bar them from practicing real estate. If you love this business, love the opportunities, etc...stay within the law. We have two locals that the state has found complaints against them to be legally sufficient. Their names appear on the state website where you can look up complaints for unlicensed activity. No matter the end result, having this as a public record with ones name attached is very negative and may affect their ability to do business even in a lawful manner. I don't know either party, but under no circumstance would I deal with them.

 My question now is, how could one be prosecuted for wholesaling properties. Are there certain contingencies that need to be placed in my contract in order for me to avoid a "brokering without a license" charge or should I just have a REA review my contract to avoid any legal trouble.

Originally posted by @Bill Gulley :

Brian, on BP we are collectively against deceiving other parties, BS clauses or weasel clauses really don't work in courts. 

If you lay your hand to any contract, be prepared to defend yourself and enforce your contract to the end, at all times, otherwise don't get into contracts of any kind.

Very good advice on getting financing lined up and knowing if your buyers will be interested before you contract!

Wholesalers need to learn how to take an ownership position avoiding the legal issues.

Wholesaling, the way most go about it is not low risk! Their conduct can easily be tortuous conduct, getting sued, fined for license violations, banned from RE dealings, and, if they don't have the means to carry out the contract, some might say fraud. 

There are 3 ways to take title, all with little or no money down, they simply lack enough drive to become properly educated. All aboard the Guru Train the Circus is in the last 3 cars, clowns and all. LOL  :)

 How would one avoid all of the trouble you mentioned as in "getting sued, fined, or banned?" Wouldn't one have to simply see a Real Estate attorney in there area to verify that there contract is intact in order to avoid said legal trouble?

Originally posted by @Harlan Cox :
Originally posted by @Bill Gulley:

Brian, on BP we are collectively against deceiving other parties, BS clauses or weasel clauses really don't work in courts. 

If you lay your hand to any contract, be prepared to defend yourself and enforce your contract to the end, at all times, otherwise don't get into contracts of any kind.

Very good advice on getting financing lined up and knowing if your buyers will be interested before you contract!

Wholesalers need to learn how to take an ownership position avoiding the legal issues.

Wholesaling, the way most go about it is not low risk! Their conduct can easily be tortuous conduct, getting sued, fined for license violations, banned from RE dealings, and, if they don't have the means to carry out the contract, some might say fraud. 

There are 3 ways to take title, all with little or no money down, they simply lack enough drive to become properly educated. All aboard the Guru Train the Circus is in the last 3 cars, clowns and all. LOL  :)

 How would one avoid all of the trouble you mentioned as in "getting sued, fined, or banned?" Wouldn't one have to simply see a Real Estate attorney in there area to verify that there contract is intact in order to avoid said legal trouble?

Pretty easy, by getting a freaking education instead of guru crap, maturity helps, if you don't shave yet everyday, consider the source of crap you base your opinions on. The world is full of con artists, the naive follow them.

BP is a social site, use to be we had professionals here, not kids wearing T-***** and red ball caps trying to ct like a professional. 

I don't think I can help you, my post was pretty clear, get an education away from gurus, forums, podcasts, youtube and other BS you are entrenched in trying to learn something. 

You might be addicted to RE junk, following a dream instead of living in reality! 

Naive, look that up! 

And no, an attorney does not verify anything, they consult just as I do. 

Wanna`stay out of trouble, don't wholesale as the gurus teach it!  They want your money kid, not your success! :)  

Updated almost 6 years ago

Excuse my harshness, it's very frustrating to say something plainly and not be understood, it's not personal but to the youth who show up, with avatars of kissing a window or their tongue sticking out or wanting to be perceived as professionals looking like they got off a ball field, my apologies it wasn't to you personally but to the whole mind set this has turned into. Best of luck, just learn real estate first and you'll get it. God luck. :)

@Harlan Cox , you said "I am not aware of the specific text that needs to be in my contract that will enable me to leave a deal at any time". But can you see that unless there IS such text, there is NO leaving the deal at any time!?

It goes back to what @John Thedford wrote: ...Are you informing them (can I add: verbally AND on the Contract) that you intend to assign the contract and if you cannot that you will walk away?

And, do you understand the term: Brokering without a License?...

Originally posted by @Brent Coombs :

@Harlan Cox, you said "I am not aware of the specific text that needs to be in my contract that will enable me to leave a deal at any time". But can you see that unless there IS such text, there is NO leaving the deal at any time!?

It goes back to what @John Thedford wrote: ...Are you informing them (can I add: verbally AND on the Contract) that you intend to assign the contract and if you cannot that you will walk away?

And, do you understand the term: Brokering without a License?...

 I understand there needs to be text. What I dont understand is the brokering without a license thing. What do I need to do in order to wholesale properties without a license?