Wholesaler · Philadelphia, PA · Member since 2017 · 37 posts · 19 votes
Hey guys,
I came across an off market property through my wholesale marketing. The seller of the home had her property listed with an agent for a week, before she delisted it because having to leave her home for showings was too much for her. She called me because she's willing to sell the property for less if she doesn't have to pay an agents commission.
The ARV is $230k-$250k, repairs are $40k-$60k. She owes $109k, and is asking me for $160k firm (She had it listed with the agent for $180k). I would need to get it for no more than $115k for it to make sense as a wholesale or fix and flip deal.
The thing is, I like the property for myself and would love to finance the deal through an FHA loan and use it as my primary residence. I never purchased a home this way, so I'm not sure if it works the same way as an as-is cash transaction, where no agent is involved, closing takes 2-4 weeks, and I use a simple 1 page contract. Does either one of us need an agent for the paperwork or any other part of the transaction?
@David Emanuel Even though she had the agent take the listing down she still may have a listing contract with said agent. You may want to look into that.
No, you don't need an agent to complete a real estate transaction. You can use a lawyer if need be or go at it yourself without any help at all.
Just make sure you know what you're doing in terms of getting a contract together or have a pro write one for you. Contracts are legal documents regardless if it's the boilerplate state form, or a custom one-pager you come up with yourself.
A cash transaction works differently than one with a loan because your lender is going to be involved in making sure the home is in livable condition and that it appraises as well.
CYA with a good contract and a good title/escrow company, and possibly a good lawyer.
getting bank financing is going to take more than two weeks, especially now with Covid. I'd just make sure I had a solid lawyer for closing and you should be fine.
@David Emanuel As others have said, no. You do not need a Realtor - but you should have some expertise on your side.
Many people think that Realtors just open doors and cash checks. I can assure you that there's a lot more to it than that.
Contracts, deadlines, disclosures, disclaimers, wrangling inspections and the renegotiations that follow, riding herd on appraisers - the list goes on and on.
For just one example, I could do a walk through and tell you pretty quickly whether a house will survive an FHA appraisal. If you don't know what to look for, you'll go under contract with EMD and pay $400-ish for a home inspection. (You DO plan on having a home inspection, right??) Following that, you'll pay another $550-ish for an appraisal.
Here's how many deals play out: the home will fail appraisal for any of a hundred different reasons as FHA, VA and USDA appraisals are very strict. You'll try to get a price concession but the seller refuses. You walk away, hope to get your EMD back (You should if your contract was written correctly), but you're out almost $1,000 for inspection and appraisal.
A good Realtor could have saved you from all of that.
So no, you don't need a Realtor. You can definitely do this yourself, but recognize that there's a risk associated with doing so. You definitely could hike solo across Africa, but you'll do better with a trained guide who knows where the lions are.
@David Emanuel Even though she had the agent take the listing down she still may have a listing contract with said agent. You may want to look into that.
Many listing agreements have clauses that state the agent is entitled to a commission within a certain amount of days of signing the agreement if the property sells (and it doesn’t matter to who).
Unlikely that you will need an agent here, but certainly have a great inspector and attorney as a part of your team. You should also make sure you have a solid contract, which should be available online if your attorney is unable to provide one. I don't recommend using your typical wholesale contract on this, as you may get some push back from your lender when they review the P&S agreement.
Thanks for the replies guys, all of your input is extremely helpful in helping me move forward with a decision.
@Derrick Gordon - She said she'll be ready to move on the first of 2021, so either way I would have more than 2 weeks
@Charlie MacPherson I do plan on having an inspection and I know the bank will require an appraisal, both of which i'm willing to pay for because I really like this property for myself and she took 20k off the asking price. I also plan on negotiating an additional 2-3k off to cover those expenses on the back end. I will have to do a walkthrough myself to make sure there is no obvious structural, plumbing, electrical or water damage, and if there isn't, I'll feel confident enough to take the risk of paying for an actual inspection.
@Michael Noto She told me she is willing to cancel her contract with her agent and sell to me for a lower price so she doesn't have to pay an agents commission. Although she told me this under the assumption I would make a cash offer and handle all closing cost, I figured it'd be worth asking her would she be ok with me purchasing the property with traditional financing and she pay SOME closing cost (half of the 4% philly transfer tax).
Thanks again for the input guys! Although I feel like I have enough info to make a decision, further input is welcomed lol
@David Emanuel Even though she had the agent take the listing down she still may have a listing contract with said agent. You may want to look into that.
BINGO! That's exactly what I was going to say. If she listed the home with an agent a week or two ago, she may still have some obligations under that listing agreement. She needs to read the agreement, and any cancellation agrees carefully before moving forward with you.
Assuming all is good to go, YOU need to make sure you have a knowledgeable closing attorney that can walk you through the ins and outs of the transaction. There's a whole lot more to buying and selling real estate then just agreeing on a purchase price.
As others pointed out, depending on the contract, she may sell to you without any agents, but still owe a commission to the agent she has a contract with. It's not as easy as just breaking the contract. There could be contracts where if property sold within the 6 months the owner may still owe a commission.
If you find that the owner can't get out of the contract - I would offer $1,000 referral fee to the agent or what ever legal way of compensating the agent there is.
A few flags are raised here. At least in Canadian real estate (I’m in Alberta).
Listed for 2 weeks: Most listing contracts have minimum durations (my province is 60days) so yes, she could still be under contract to the agent even if the house is not on the market. If she sells below what she owes AND commissions due...there will be legal issues!
Also, in private sales there is no requirement to disclose material latent defects so Buyer Beware. You will need to be extra diligent with inspections like foundations, roofing, permits, water issues, grow op....