Investor · Chicago, IL · Member since 2013 · 21 posts · 28 votes
I have my 1st wholesale deal, and the buyer and seller don't know that I'm wholesaling it. Buyer knows there's an assignment fee, just doesn't know who it is.
I convinced the Title company to include the fee but they insist on putting my name or my LLC name on the HUD as "Assignment fee to XYZ", even though I asked them to just write "Assignment fee" without the to.
how do I convince Title to remove the "to XYZ" part without seeming shady?
Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes
12y
Without seeming shady? You've already missed that boat. The title company has to disclose where all of the funds are going on the settlement statement, they can't just have line items going to a mystery party. If you want to do repeat business I don't know why you can't do it in an up front an honest way.
Who does the buyer think you are, the actual seller? If that's the buyer will find out pretty quickly when there's a different seller.
Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes
12y
Without seeming shady? You've already missed that boat. The title company has to disclose where all of the funds are going on the settlement statement, they can't just have line items going to a mystery party. If you want to do repeat business I don't know why you can't do it in an up front an honest way.
Who does the buyer think you are, the actual seller? If that's the buyer will find out pretty quickly when there's a different seller.
Flipper/Rehabber · Virginia Beach, VA · Member since 2014 · 74 posts · 31 votes
12y
Roy
Why would you not want your name or business on the sheet. I would think you would want both parties to know you so they can do deals in the future. Just my opinion.
Investor · Chicago, IL · Member since 2013 · 21 posts · 28 votes
12y
Thank you guys!
I'm not trying to be shady at all. I had a buyer for a certain price and then I negotiated the deal with the seller to reduce the price, but the buyer was still willing to buy at the higher price. I convinced both parties to stay at their prices, but the buyer is paying me a commission outside of the deal. Just thought I'd make more money out of the deal, and keep everyone happy....
I just want to do it in a way in which nobody feels like they could have gotten a better deal.
That's sort of the entire point of wholesaling though... obviously the seller could have gotten a better deal if they sold it to your end buyer which is what you are trying to keep them from knowing. If you want to avoid this issue, close it cash and double close. If that isn't an option, I suppose you have to deal with how title is drawing up the docs, they aren't going to stick their own necks out there by not disclosing all details to all parties
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
You mean that won't appear on the HUD? Definitely in shady territory, if so. Is the buyer getting a loan?
If you're going to do assignments then everyone involved is going to know your fee. Best, IMHO, to be up front with both buyers and sellers about your true role.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
12y
You can't hide your purchase price from the buyer, unless you do a double close. You are assigning your contract with the seller, whatever that contract price is. Maybe you split the reduction with your buyer, so he is happier and comes back to you.
Investor · Chicago, IL · Member since 2013 · 21 posts · 28 votes
12y
@Keving Brown I agree. Double closing wasn't an option here, since the amount is too small and woudl get substantially eaten up by the closing costs.
@Jon Holdman Thanks Jon, the buyer is paying cash. The agreement outside of the deal states a bird-dog type of commission, not shady at all. I agree with the being upfront about everything though.
@Wayne Brooks That's a very good idea. I think I will implement that strategy next time, that way everyone is happy and I don't need to hide anything.
I just want to do it in a way in which nobody feels like they could have gotten a better deal.
You are either confused or not getting your question across clearly. If the assignment fee is on the HUD, even if your name isn't, then then will know someone is getting a fee. The most obvious person to be getting that fee is you. They will figure it out anyway.
Well then he is obviously going to know you are getting a fee. Do you mean a "Commission" in addition to the assignment fee? If that is the case you are most likely breaking real estate brokerage laws.
If you want to hide something from the other parties that IS shady. If there is a lender involved keeping it of the HUD-1 is likely illegal. The legitimate way to keep things private (at least until it hits the public records) is to double close.
It may not be an issue, lots of assignment deals happen without a hitch. However you should have thought about this earlier. One thing you can say to sellers is "If for some reason I change my mind and decide I don't want the property as long as I find someone to take my place and you get the price we agreed to, are you OK with that?"
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
12y
Because it is last minute this is tough. You could say "Hey I decided I don't want it after all, but great news I found a buyer who will close tomorrow and you will get everything we agreed to. Are you OK with that?"
Otherwise if it comes up at closing just say "hey this is the price you agreed to and you are getting every penny you agreed to sell it for." That can be an uncomfortable conversation. Sometimes in life we have to have those from time to time. In general having those tough conversations is better than avoiding them. Good luck - Ned
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
Are you asking what to tell the seller (Ned's answer) or the buyer? IMHO you should have been upfront when you first spoke with the seller and told them you weren't planning to buy their house at all. Instead you should have just told them you were going to find a buyer for their house and give them the price they are asking. If you tell a seller you are going to buy their house, agree on a price, and then write a purchase contract then you dang well better close on that house. Buyer or not. OTOH if you're up front that you're going to try to find a buyer and you fail then its an easier conversation if you can't find a buyer.
As far as the seller all these fees should just appear on the HUD-1. If the deal is too thin to handle the costs of a double closing (and transactional funding, I assume) then you can't be getting that big of a cut. Commissions on a sale through an agent are 6%. Had the seller been getting a loan having this side deal would have been fraud. I don't think it is since there's no lender involved. But it definitely gets you over to the shady side. As does, IMHO, not being 100% up front about what's happening with the seller.
Investor · Chicago, IL · Member since 2013 · 21 posts · 28 votes
12y
@Jon Holdman Thank you for the comment. I may not have stated the case clearly enough so I'll try to elaborate further:
The seller knows I was looking for a buyer for him. The deal with a buyer was along the lines of "find me a good deal at no more than $X, and I'll pay you Y% of the deal." The Y% is very thin, as is the assignment fee, but both are a sum I can live with. The legality of our original agreement is not an issue here.
The buyer was willing to pay the full amount to the seller, after which I negotiated the deal further with the seller, who was happy to receive less than the full amount.
I thought if the buyer doesn't mind paying the full amount and the seller doesn't mind getting less than the full amount, why not take the difference for myself as an extra assignment fee. But if the buyer would find out about it, he'd want to "enjoy" the extra savings, thinking he's already paying me the Y% of the deal we agreed upon earlier.
The dilemma was how to get the buyer to still pay (happily) the full amount, have the seller get his reduced price, and let me make the difference, while the buyer doesn't feel as if I "cheated" him by making extra money on top of our agreed upon fee.
Investor · Branford, CT · Member since 2014 · 131 posts · 67 votes
12y
They way I deal with that is simply put and or assigns after my LLC in buyers line. This makes it transparent of what can and cannot be done by contract - point blank. I will sign all paperwork before closing and let the sellers know that a business partner of mine will be at closing. This has never been questioned by the seller.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
I'm very confused. You said you and the buyer have a side deal for him to pay you extra. Is that the additional amount over the Y% the buyer said he was willing to pay? If the buyer's paying you Y% on the HUD and then this additional side amount he certainly knows how much you're making.
Or did you mean you and the seller have a side deal for the difference between the original price (that the buyer still thinks is the price?) and the renegotiated price? If so, you're being deceptive with your buyer. They buyer thinks there's one price when really there's a different price. And the percentage you're netting is more than what you and the buyer agreed on. If there was a lender involved this would certainly be loan fraud. Even now it has the potential to turn into that if they buyer turns around and tries to get a loan and uses that contract as the purchase price.
Investor · Chicago, IL · Member since 2013 · 21 posts · 28 votes
12y
@Jon Holdman There's no fraud. The buyer is an investor, who doesn't live here, and told me to find him a good deal on a property and he will pay me Y% of the purchase price. This is an outside agreement between him and myself. It doesn't appear on the HUD or anything related to the deal, meaning he can't even attribute it to capex on the property. It's like you would say, "here's $2000, go find me a good deal".
I have no side deal with the seller. For the sake of the example the Seller wanted say $50,000. My investor was willing to pay that. Then I went back to the seller and said, "would you be willing to do $45,000?" and the seller agreed. So now the investor is willing to buy at $50K and the seller is willing to sell at $45K. I saw an opportunity to make $5K for myself. Bear in mind, the seller at this point doesn' know that the buyer is willing to pay $50K and the investor buyer doesn't know the seller is willing to sell at $45K.
The seller wouldn't mind me making the $5K as long as he got what he wanted. The dilemma was how to structure it with the investor buyer so that he doesn't feel "cheated".
I think @Wayne Brooks touched upon it that I should have gone to the buyer and said, "if I reduce the price, will you split the difference with me?" I think that would be the smartest thing to do.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
OK, so the buyer is willing to pay you y% of the $50K purchase price as your fee.
Well, if you're doing an assignment it will show the $45K purchase price plus your $5K assignment fee. So your buyer will know what the seller was willing to accept. And the seller will see the buyer paying you an extra $5000 in assignment fees. I wouldn't expect either of them to walk away with a good feeling about this or you.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
12y
Roy, as an aside I'm pretty sure you are violating your state licensing laws by collecting a "commission/referral fee/finders fee/whatever you may call it"from a buyer for finding them a property, whether it is on the HUD or not.
Also, your trying to make an additional spread, and figure out how to hide it from the buyer, when the buyer is paying you a finders fee for locating him a property.......is pretty much the definition of being shady......do that here, and you'd never do another deal with anyone we know.
martinsvile, VA · Member since 2013 · 90 posts · 16 votes
12y
Sounds like your not comfterble with your own deal. Just take the % agreed upon. Let the seller make a couple more dollars. And now every one walks way happy. U may loose a little bit now, how ever you will gain to happy referrals. Which will be happy to bring you more business later.
Let the seller know some paper work wasn't exactly Clare and it turns out they will be making more than every one thought. The buyer already knows what their paying. So weather it be the seller or to the middle man. They going to pay.
chuck it up as a learning experience. And stay with in the law. Making more money is always good, but an extra couple bucks now. or a extra repeated couple thousand later. Jmho opinion.
Investor · Chicago, IL · Member since 2013 · 21 posts · 28 votes
12y
@Billy Hills I think I'm going to do that. You're totally on point :) Thank you for the great advice.
@Wayne Brooks I'm not violating any state rules, it's all done legally and it's a consulting fee for accompanying an international buyer investor. No need to be hostile, it's my first wholesale deal and I'm learning.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
@Roy K. no matter what the gurus say wholesaling is, for all intents and purposes, unlicensed real estate brokering. You're connecting a buyer and seller and collecting some money when they close a deal. The only reason wholesalers do double closes and assignments is because that makes them a party to the deal rather than just a broker. That's the mechanism for avoiding unlicensed brokering. What @Wayne Brooks is pointing out is that as soon as you start accepting fees outside of the transaction itself you are on much shakier ground. What you call the fee is irrelevant. A judge will look at the facts of the situation and make their own determination. There's no hostility in Wayne's advice. He's telling you that you are putting yourself at higher risk by having this "consulting fee".
Investor · Chicago, IL · Member since 2013 · 21 posts · 28 votes
12y
@Jon Holdman Thank you for the advice and the concern, Jon. I work closely with an attorney, so I'm pretty confident in my dealings. I'm not breaking laws, and I don't see any reason I would find myself in front of any judges.
Specialist · Houston, TX · Member since 2012 · 579 posts · 301 votes
12y
Probably too late but going forward you need to find a Title company familiar with wholesaling and who is willing to do "Blind HUDS" for each side. The seller gets a HUD statement with just their costs and proceeds, the buyer gets the same. Nothing illegal but now each only needs to see their side of the transaction. Good luck.