DRAFTING WHOLESAILING CONTRACT!!!??
Investor · Glen Allen, VA · Member since 2014 · 28 posts · 3 votes
I am getting started with realestate wholesailing in the Richmond, Va area. I have contacted many Realestate Attorney's in my area who have either:
A. Have no idea what I am talking about
B. Says what I am getting into is illegal
C. Only do escrow and/or closing and have no experiencing drafting contracts to be used for each deal.
So I am reaching out to my Biggerpockets community and asking for help in overcoming this hurdle. First, I know its not illegal, but where can I go to find a generic purchase contract and assignment drafted to get started with wholesailing>>
Any Thoughts?
NEED SOME HELP GUYS!! THANKS!
Oh, great, another opportunity for people to RANT about WHOLESALING!
All the time I see people in BP arguing about this while others are simply out there DOING IT and making money.
Do you really think the GURUS could even teach "wholesaling" if it was "illegal". Don't you think there would be a gazillion RIP-OFF REPORTS of people saying "What they taught me was illegal!"?
Whatever, I'm headed out to buy a house...
Have you consulted your local realtor association once you become a broker? They usually have plenty of contracts and forms available for people who want to intermediate property transactions.
Or just google around, find a contract and see what happens when you use it. Could work out fine.
Or sign up for guru wholesaling course.
@Tom V would you recommend a wholesale guru course starting out or do you think one can pick up enough information studying on here and picking up books on wholesaling?
Thanks!
@Phillip Smith I think wholesaling is best described as performing real estate activities that normally require a license, without a license.
I would google around for a wholesaling course - there are plenty of people here who do it.
Good luck!
@Jermaine HILL I am not sure what you are saying real estate attorney's said was illegal? Are you saying they said wholesaling is illegal? Try E Sean Tluchak, attorney at [REMOVED].
Brian
@Brian Rhodes - Yes I have had a couple realestate attorneys tell me what I am getting into may be illegal. Granted I don't think that quite understood what wholesaling is.
But I was considering going the guru route and get a general purchase contract and assignment from their website.
But I will definitely give E. Sean Tluchak a try. I appreciate the lead!
first off I think Tom V is crazy for saying that wholesaling is performing things that a realtor should be doing. Sorry Tom V but that sounds like the typical realtor that is upset at the investor making GREAT $$$ and not having spent the time an money on the license. Jermaine you need to google a real estate for sale or purchase contract for your state and usually you can find a fill it in pdf format one that all you do is just what it states, fill it in. Then print and have your seller sign and you I sign. Boom, there ya have it
also your not actually selling real estate. You are selling a contract for a profit. As long as 2 legal adults sign a contract that is a LEGALLY BINDING CONTRACT and once you open escrow on with that contract you then have what is called EQUITABLE INTEREST in that property so sell away bro
Here you go: Virginia Contract
I use the State promulgated contracts 98% of the time. They're straight forward, commonly acceptable and perfectly legal. You can add special provisions in Paragraph 29 (although I would add in as a separate Exhibit referenced in Paragraph 29).
If you look at the file place right here on BP you'll find several Assignment forms. Most Title companies I know wouldn't care if the Assignment was written on Toilet Paper as long as it had all the parties correct information.
@Tom V. , advising someone to use any old contract and "see what happens" is frivolous, dangerous advice...shame on you. Your sarcasm is wasted here.
Jerry, very good, some others.....well.....too bad there is no test to be able to post on BP!
Is that attorney a member of the Bar in VA? Otherwise, you might get a load of crap.
No, you don't know if what you have in mind in VA is illegal. Just saying wholesaling and assigning a contract isn't really all there is to it leaving many aspects being subject to legal complications. Exactly, what do you expect to do?
We just had one guy in FA who is having legal problems in wholesaling by advertising a property as if he were the owner, advertised to the general public, that's not really wholesaling but points out there are a hundred+ ways to get in trouble.
Why not take a more serious approach and skip the wholesale guru junk and learn RE? Are you looking for a fast buck without putting much effort into this industry?
I am just looking to get started with wholesaling rightfully and legally and not take corners. By having a good paying job at the moment, I feel puts me in a great position to learn things the right way!
That's why I took the time out and called around to reputable realestate attorneys to help draft me both a purchase and assignment contract. I could have done with most people do which is look up on google.com and get contracts off the website and use them for their deals.
So I am really trying to do this the right way and truly learn realestate.
Google the term Assignment of Purchase and Sale Contract. Each state would be slightly different, but it doesn't have to be complicated. Here's a sample you might be able to use.
@Jerry Puckett Got it. Shame on me for suggesting 'any old contract.'
What should Jermaine do when he gets to the part of your contract about a 'Selling Company' and 'Listing Company.' Is Jermaine either one of those? Are you advising him to fill in one of those?
If Jermaine fills in a contract titled 'Virginia Association of Realtors' would it be likely that the seller with whom he is working to assume Jermaine is part of the Association of Realtors? (I think probably so...)
Would they be correct in assuming that Jermaine is part of the Association of Realtors? (I think probably not...)
If my advice is frivolous, yours is plainly creating a legal liability for Jermaine.
Jermaine - you will get lots of advice from guys like Jerry Puckett. Do what you think is best.
I think if you want to broker real estate, you should go get a license to do it, learn your liabilities and risks, and represent sellers or buyers.
So how many of you don't have a license and are doing just great at this business? I would love to get started, but I'm not sure that if I had asked that question I would want to hear that I should go get a realtor license. Or am I just taking this the wrong way.
Great! After you collect a library of forms, take them to your attorney, it will save you some money, or should if they have a goby.
I will be 100% transparent with my biases here.
This is one of the things that I think is the worst about Bigger Pockets. You have a few people who wholesale properties successfully, and they come here to pitch a system or a method or whatever. The promise is that you can get rich and you don't need capital and you don't need a license. "YOU'RE ASSIGNING AN EQUITABLE INTEREST!"
That all may be well and good and it might hold up in court or it might not. I haven't tried it or tested it. But common sense says that if you are serving as an intermediary in the sale of an asset, you are functioning as a Broker.
If the asset is Corn, you are a commodities broker (regulated activity).
If the asset is a Stock, you are a stockbroker (regulated activity).
If the asset is Real Estate, you are functioning as a real estate broker (regulated activity).
I know I am inviting all kinds of wholesaler hate with this message, but if you want to start in real estate, you might be better served by taking some real estate agent courses at least and learning the ropes. This is why the lawyers Jermaine spoke with wanted to steer clear.
Alternatively, if you are a smooth talker with good marketing you can probably find some nice old people who don't really know what their house is worth. Lots of ways to get rich quick.
I understand your point. However the world does work off of "loopholes" and education in whatever we do. I do not wish to stick it to some old people or anyone else. I'm only here to learn and make informed decisions. I do appreciate your advice and it is good. Thanks.
Thanks a lot for everyone replying to my post.
thanks for asking the question
Hey@Jermaine HILL , I would strongly suggest taking the course and getting your license. I advise this because this is the route I have taken, and I have learned so much not only about the real estate industry as a whole, but it has also taught me a lot of useful information about the real estate transaction process, and that I feel has helped me to become a better wholesaler. Well, much better than I think I would have been had I not taken the course. I am still very new to this field, but let me tell you that it will be very beneficial to your business if you get the license. It teaches you the legalities of this business, which you will need to know as a wholesaler. It teaches you how to do a CMA(competitive market analysis) on properties, which you most definitely will need to know to be an effective wholesaler( you have to know that ARV). It will teach you how the real estate transaction process takes place, and as a wholesaler you must understand how this goes. Like I mentioned, there are just too many benefits to getting your license, especially if you are new, and it will be very beneficial to your wholesaling business. I just really feel that if you get your license, you network at your local REIA, BP, and other places where people in the industry are hanging out, and reading constantly about your field, these all help you to become a better investor, and it helps you to run a very successful business. I am still learning a lot, and I know that will never stop, but just know that anything that you can learn that positively contributes to getting your goals fulfilled and assists in getting you to where you want to go in life, then I encourage you to do it. IMO....
In my experience, assigning contracts and staking an assignment fee is a valid way to do some deals. This is only one tool to have in your toolbox. As an investor, I probably do 3-4 such deals per year. Not many, but sometimes it's the right tool for the project.
When working with your attorney, ask him/her to come up with a simple contract assignment. That is the agreement needed to assign the contract to the new buyer. Note however, that if the new buyer fails to close, the liability may be yours. So you should supplement the assignment with another agreement that governs the terms of the assignment. It should cover what happens if the new Buyer discovers a problem in due diligence. It also should make sure that you get paid, and ensure the title company does not close the transaction without sending you the assignment fee. This is typically done with an irrevocable letter of direction from the new Buyer to the Buyer's attorney or Escrow agent.
This is all 100% legal, unless there is a provision in the agreement of purchase and sale that prohibits assignment.
Hope that helps.
Victor Menasce
President of the Ottawa Real Estate Investors Organization
Managing Partner of US Real Estate Partners.
I completely understand someone who advocates for getting your license. But I like to look at things a little more differently. I am currently a full time engineer. So I like to look at things rather or not its value added for me at the moment. I believe getting my realestate license rght now will not be vaule added. I will have to take time to study and take time off from work to talke courses either online or in a classroom. Right now I am just interested in learning the business slowly through wholesaling and if I like it enough down the road I will eventually get my realestate license. Its the same principle as telling a high school student to go major in something just so they can have a degree. What if I get my license and decide I dont really like realestate like I thought I would have. Wholesaling gives me a way to get into realestate and learn many facets of the business to see if I really am cut out for it. I agree if this is somethng I see myself doing for a while , then I see the benefits in otaining my license in the near future.
One can still drive a car without a license, right? You can operate the car, know the rules of the road and probably be fine for a long time driving without a license. This comparison is a little stretched, because there aren't necessarily 'real estate cops' patrolling the marketplace, though given what has happened in the market in the last 7 years, courts will almost invariably side with the homeowners.
Read this thread:
http://www.biggerpockets.com/forums/51/topics/1305...
A guy thought he had title insurance, thought he covered his bases with a lawyer involved. This was an auction property, not a yellow-letter sourced deal, but the guy has wound up in a pickle trying to 'wholesale' a deal to an acquaintance. Now, finger pointing, lawsuits, liability. If you go outside the 'normal' real estate market (MLS, agents, etc.) you can absolutely get good deals and you can still treat people fairly honestly etc..
You also should be prepared to understand your risks. What if someone sells you a house but it turns out they only own 75% of it? What then?
You all need to do some more reading with an open mind instead of with preconceived notions. After reading the guru junk on "equitable interests" can you really define that? No, probably not. I put $50 down on a contract on a $500,000 property, is that a sufficient interest to force a sale? In some places it might be, in most, no, it's not sufficient in the scope of the transaction. How about $50,000 down? Yes, that is sufficient anywhere.
Next issue, are you acting as a broker assigning a contract?
I agree to buy and half way through the deal I decide I don't want the property but can flip the contract, I do so, my buyer closes and all is fine. Is the state coming after me for assigning a contract and acting as a broker? Probably not, it's legal to assign a contract and while questionable in real estate, there is a justification of getting out of the deal and the public (seller) is best served by doing so getting the seller to closing.
It's when you are in the business of flipping contracts that it becomes obvious that you are not acting in the public interest but your personal interest and your method, regardless of the means, is to contract to facilitate a sale of real estate to a third party, that is brokering. It doesn't matter that you used a sale contract in lieu of a listing contract, the results are the same.
Folks on BP need to understand the reality and difference of "being in the business of" something and acting in a personal capacity on a one or two time type transaction.
Regulators or enforcement officers don't look so much to such infractions of acting personally once in a great while the same as they do when you have a clear commercial business purpose.
Example most should get. Garage sales, here and in many cities, technically you need a business license if you are going to be selling anything to the public. But garage sales are so incidental and infrequent and most folks may have one that exceptions are made to the license requirement as it serves no public good, terms are cash and walk so it's not like you're selling expensive consumer goods everyday. Here, we register garage sales ahead of time, no cost, just register and you're allowed 2 sales a year at the same address. That ensures the frequency of business is low and at least they know you're the one responsible for those signs you stuck all over the place.
Now, if someone were to hold garage sales every weekend (which some did and why the restrictions were adopted) they will nail you.
Understand too, that violation of one law usually will involve other violations. If I'm running a business as a constant garage sale I'm in violation of that ordinance, I'm probably also guilty of tax evasion, I didn't collect or report sales taxes, there may be traffic violations caused by my activities if cars were parked restricting traffic along with sign violations. Just saying, one violation can lead to other violations.
RE is no garage sale and the restrictions and violations are much more serious. Facilitating the sale of RE without a license is probably a more serious misdemeanor, a second violation can well be a felony, either being sufficient to put you in jail if the judge desires.
I guess folks think RE laws were just established to generate revenue for governments, professional license divisions, well, no, professional licenses of all kinds are put in place to protect the public good, to protect citizens from carpet bagging cheating, sidewinding, low life, greedy sneaky types dealing in that area regulated. The laws were not established to make it hard to get into a profession but to require a certain level of competence and fair dealing required to serve the public.
Saying there are no RE cops says you don't have a clue about the RE industry, those who play by the rules and carry on legally and ethically have reason enough to turn in those who don't. Every single professional activity in RE, attorneys, closing agents, realtor, banker/lenders, appraisers and anyone else dealing in real estate who is aware of rules of the road all support the professional requirements of their industry, you never know who won't like your haircut and turn you in.
Can you wholesale legally? Absolutely, but those loopholes you look for aren't the way to establish you business as much as following the law to the letter. Read your state requirements for a license and then, don't do those things, don't even look like you're doing those things, if that means taking title, then use transactional funding! All RE is local, look to what is acceptable conduct in the area you are dealing in and then conduct yourself accordingly, don't listen to guru crap or Joe Shmuck in the forums, they won't be going to jail or getting fined, you will. :)
You also should be prepared to understand your risks. What if someone sells you a house but it turns out they only own 75% of it? What then?
I'm not sure how being a licensed agent would change this outcome in an investment scenario?
Do agents have access to special due diligence protocol that the 'unwashed' investor is not privy to?
That deal you linked to was quite complex and, even as a novice real estate investor, my risk management alarms would have been blaring very early on in that process.
Of course there are benefits to being licensed. Then again, if I am an agent, I will not be able to market to homeowners of listed properties to gauge their interest in trying to sell the house (that their licensed realtor has sitting on the market for 100+ days) on a lease with an option to purchase.
Re the other thread, some of the risk that 'wholesaler' entered into arose from buying an auction property and that he wanted to wholesale it to someone else was merely a further complicating factor.
A 'traditional' transaction would have allowed the end buyer to receive a preliminary title report, and a full reconveyance of insured title would be ensured in the escrow process. The auction investor purchased a security interest which is not the same as 'clean' title as he learned soon thereafter.
I am glad that you would be able to see some red flags on that deal. I don't know if everyone would. I am sure good wholesalers can figure out whether they are getting clean title. I think it's very difficult for novices to navigate that question on their first few deals.
The 'unwashed' investor is different from the wholesaler in my book. If you are bonafide buyer with the cash to actually purchase a house and you commit to a contract, god bless you, treat people fairly and have at it.
If you are a "wholesaler" posting bandit signs and mailing people "I will buy your house for cash!" When the truth is "I will try to flip my contract with you to a cash buyer I sorta know once I have you on the hook and I will try to take as much out of the trade for myself as possible!" then that is brokerage activity in another guise and a novice attempting such a transaction creates a legal liability for himself.
As for the big 'downside' of not being able to do mail someone with a lease option offer, I am not 100% sure that you are prohibited from doing so if you disclose that you are licensed and make plain you are not trying to 'steal the listing'. As an overall business strategy, I don't have any experience with it, but my sense is that people who sell books about lease options have a better business than people who manage to actually do lease options. I could be wrong. Couldn't you just write a lease-option offer and direct it to the listing agent?