What happens if you over pay?

[Rick Cutrera]

I listened to Podcast #91 (Ben Grise).  In the event a wholesaler overpays what happens next?  Forced closing and / or forfeit your deposit? 

I live in an area of N. VA where home prices start $650K making whole-selling a good strategy.

Thanks,

Rick

[Jim Viens]

To answer your question: There are different camps on how to handle a wholesale property you can't get a buyer for. Some would say to have a "weasle" clause in your contract letting you out if your "partner/s" (read: "buyers") don't approve the deal (i.e. won't buy at your price). Many would say that is an underhanded and unethical way out. Others will say make sure the seller knows up front that you're are a wholeseller and will be looking for an investor to offload the property to and if you can't find a buyer you can't complete the sale. If the seller is ok with that then there are few who could argue against that arrangement. A potential problem with that, though, is that you're setting yourself up as a broker of a transaction and may run afoul of some interpretations of real estate law (i.e.: brokering without a license). Another (and most would say preferable) option is to make sure you're prepared to close and purchase the property for the contracted price whether you find a buyer or not. I'm guessing it would only take one of these instances for you to make sure that you have a solid deal before contracting your next wholesale. The best option, of course, is to have a list of buyers going into it. Know what they're looking for, where they're looking and what they're wanting to pay. Then you basically have a shopping list and can peddle your deals to a pre-qualified set of buyers at a moment's notice.

As far as your market goes, I agree with the other commenters. While the higher-end homes can allow for bigger margins, that alone doesn't qualify it as a "better" place to wholesale. As a matter of fact I believe most wholesale deals tend to be in "B" and "C" areas. You can more than make up for the larger margins by sheer volume in these neighborhoods because there is such a high quantity of distressed sellers, foreclosures and short-sales.

Good luck!