wholesaling Earnest Money and Due Diligence

Flipper/Rehabber · Wilton, CT · Member since 2015 · 4k+ posts · 4k+ votes

3y

I think you should revisit the notion of what wholesaling is. Not your fault. These questions are very wrong questions because people have thaught you wholesaling the wrong way.

We do not put an deposit down when we wholesale. The reason why is because the following.

WHAT exactly is an Earnest deposit? It is a show of faith that you WILL go through with buying the property yes?

But as a wholesaler.. will you actually buy the property? Nope. Why then would you or why would anyone expect you to put money down when you are not buying the property?

The only reason is... you didn't tell the seller you have no intention of buying that house... so TELL them!

That is what we do. We are completely 100% transparent and honest. No one expects you to put money down when you tell people exactly what you are planning to do and how it works.

Forget what everyone told you about how wholesaling is done. They are ALL scumbags. They get the seller is trouble and they get you in trouble.

Always use common sense integrity and honesty to do anything and everything and it is hard for you to get in trouble!

2 Reply

Chandler Williams

OP

Member since 2022 · 3 posts · 5 votes

3y

Thank you for your response Jerryll, I really appreciate the help.

Do you have any recommendations for learning how wholesale contracts work and learning more about the wholesaling process?

0 Reply

Eliott Elias

Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes

3y

You want to charge your end buyer a non refundable earnest money deposit to be sent no later than 3 days after you assign. This will give you assurance that they will close

0 Reply

Scott E.

Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes

3y

I'll actually answer your questions instead of going on an emotional rant like the poster above.

The only caveat is that I'm speaking to how things work in my region, and how wholesalers operate around here. It may differ a bit in your area.

1. The one thing I am unsure about is how earnest money works when you have yet to find a willing buyer to assign the contract to? - If you are putting an offer in on a property to get that property under contract, part of the contract is that you put up earnest money. Sure you could put $1 up in earnest money if you don't want to be much out of pocket here, but do you think a seller is going to accept your offer when you put up $1 earnest?

2. Does EM still have to be delivered in 3-4 days? And if we don't have an actual buyer in that timeframe, does the EM have to come out of our pocket? - Agents and title companies I work with always expect EM to be delivered within 24 hrs of opening escrow. And yes, the EM has to come out of your pocket. You're the buyer at this point, until the contract is assigned.

3. Is the normal practice in wholesaling to analyze a deal -> find a buyer -> then offer the price to the seller and form agreement? Or find a deal first then market it to buyers, then offer on the house and create an agreement with the seller & buyer? - No. What is normal practice for wholesalers is to get properties under contract, then market those properties to their list of buyers. If the wholesaler is unable to find a qualified buyer before the due diligence window expires, they will back out of the contract.

4. What is the standard process from start to finish so we can eliminate as much risk as possible? - Get properties under contract for way under market value. Assign the contract to a cash buyer for a price higher than the contract price. Collect your fee when the transaction closes.

5. Is it better to have a willing seller and buyer before sending the initial purchase/sale agreement? or should we get the seller to agree first and then find a buyer? - Answer to first question is no. Answer to second question is yes.

4 Reply

Bryant Brislin

Title Representative · Irvine, CA · Member since 2017 · 874 posts · 519 votes

3y

@Chandler Williams this is strictly how I look at wholesaling and house I do it, so just my two cents:

As a wholesaler, you should have the ability to put in an EMD within 3 days of opening escrow. If you don't have the money, then borrow the money from someone who you will pay them for use of their capital. Go to Pace's group, Creative Financing With Pace Morby, on FB, and look for "gator lenders". Those are people who have cash/credit and will lend to you if you have a good deal locked up. Yes, once you find a buyer, they can replace your EMD, but you need to have the initial EMD yourself. Also, you should ask for an option period, i.e. the first 14 days of the escrow, so that if you need to cancel for any reason, you can get your EMD back. Now many escrows will require that the seller sign off on the EMD release, which can be frustrating since most contracts say it should be a unilateral function (buyer automatically gets their EMD back if they cancel within the option period), but if a seller chooses to be a jerk and not sign it, the EMD could be frozen in escrow, so don't use your rent money for it. In Texas, the state I mostly work, despire me being in California, sellers in the "B" usually are okay with lower EMD/option amounts, i.e. $200. You can reach out to me with questions.

1 Reply

Jerryll Noorden

Flipper/Rehabber · Wilton, CT · Member since 2015 · 4k+ posts · 4k+ votes

3y

Quote from @Chandler Williams:

Thank you for your response Jerryll, I really appreciate the help.

Do you have any recommendations for learning how wholesale contracts work and learning more about the wholesaling process?

This is what I did when I was in the learning stages. I absorbed all I could from people on what wholesaling is... then I combed all that information through using the common sense comb.

I took what made sense, and tweaked what didn't make logical sense and created my own system.

But as you have noticed, wholesaling, in reality, is really simple. Getting a contract signed and assigning that contract. It is finding the leads that is hard. So focus on lead generation.

Once you have that covered, then yes you do need to have a bit of insight on the workings of the transaction.

But all this should be easy to figure out the moment you keep commonsense in play.

Start with getting in touch with a wholesaler-friendly attorney for your closings (if you are in an attorney state), and build a relationship with him (that is also what I did)..

He should guide you along the way as you go. Remember do not wait until you know it all before doing anything. The most valuable lessons are issues that stop you in your tracks and you devote time and effort to solving them. Often those lessons can't be learned, they have to be experienced.

You are doing good though. You are asking the right questions. Keep moving forward and if you ever need advice, just summon me here in the forums, tag my name and I will answer your questions here in public.

1 Reply

James Hamling

Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes

3y

@Chandler Williams ok, simply put your doing EVERYTHING wrong.

First, and i don't know why nobody else is catching this, you MUST go directly to your broker, sit down and discuss all this with them.

Your a licensed R.E. agent, that is NOT a solo thing, it means your an extension of that broker, and anything you do in Real Estate has possible MAJOR implications from both the broker and or real estate regulatory boards.

Then, if your a member of NAR, you better check on that and make sure your not making conflicts there.

You should have all the contracts readily at your disposal. having been an agent for 2 years already, it's really concerning that you wouldn't readily know the contracts for such as of yet, so I have to assume you have done exceptionally little the last 2 years.

Go meet with your broker, explain what you want to do, ask your broker for direction on what you can do, how to do it etc.. I guarantee they will not say "oh, do whatever you feel". It sounds like your talking about placing offers on properties WITHOUT intent to execute on that PA, that is fraud right there and NAR does not look kindly upon such, nor do brokers or brokerages. As @Jerryll Noorden said BE HONEST, full disclosure, INCLUDING that your a licensed agent.

And guess what, if your using a proxy thinking that will protect from disclosure as an agent, nope, it doesn't, you have to disclose it even then.

And beyond all this, I don't see 1 mention of what value you bring to any of it, just a lot of talk about how to make $. if making $ is your focus, your gonna fail. The focus is on what solution you bring, what value you deliver, and then it's simply monetization of that value.

Step 1: Go talk to your broker!

1 Reply

Derick Dunbar

Member since 2025 · 1 post · 0 votes

1y

but if you not the buyer then why would they sell to you

0 Reply

wholesaling Earnest Money and Due Diligence

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