Question about Wholesale Contract Provision

9 Replies

A newbie wholesaler, who says he has a Mentor, has a one page Purchase and Sale Agreement that contains the following provision:

"This contract is binding at 11:59 pm on the tenth day after it is executed by the buyer and seller."

Assuming that every clause and sentence in a contract has a purpose, what is the purpose of the above-quoted sentence? Is this a 10 day right of rescission?  Any thoughts on the purpose of the provision?

Depending on any other clauses within the contract, the way this is worded, the binding acceptance doesn't occur right away.  Essentially, that wholesaler could shop for a higher bidder, even after accepting an offer from you. I would insist on using a different contract.

Happy Investing

Derek Dombeck

@Derek Dombeck  Thanks for your input.  To clarify things, the quoted provision is in the original purchase and sale agreement between the Wholesaler and the property owner.  This is not in an Assignment from the Wholesaler to a cash buyer or other real estate investor. 

I read the provision the same way.  Its not binding until ten days.  So, during that 10 day period the property owner can cancel the contract or sell it to someone else.  But why would a wholesaler put that in his contract?  I don't understand.  I'm just trying to see if I am missing something here.

Dumbest thing I've seen.  Neither party is bound for 10 days.   Some idiot's bright idea.

@John T

This is an escape clause for the wholesaler. It gives BOTH the seller and the wholesaler the right to walk away. If the wholesaler can't find a buyer to assign or sell to within 10 days, he can walk away.

Happy Investing

Derek Dombeck

@Derek Dombeck   and @Wayne Brooks  

OK.  I think we have a consensus:  its not the brightest thing for a wholesaler to put the above quoted provision in the contract.  Thanks for your input.

@Derek Dombeck  & @Wayne Brooks    Just for laughs, here is a model form of Wholesale Contract:

WHOLESALE CONTRACT

This contract is made between __________ (“Buyer”) and __________ (“Seller”).

Buyer agrees to sell the Property described below to Seller for $__________.

The Property is described as follows:________

Buyer shall not be required to deposit any earnest money into escrow.

The closing, if any, shall be in 90 days at such time and place as Buyer shall choose, in his sole discretion.

SELLER UNDERSTANDS THAT BUYER DOES NOT HAVE THE FINANCIAL ABILITY TO BUY THE PROPERTY FOR CASH OR THE CREDIT WORTHINESS TO SECURE A LOAN TO BUY THE PROPERTY.  IN FACT, BUYER HAS NO INTENTION OF BUYING THE PROPERTY.

SELLER FURTHER UNDERSTANDS THAT BUYER IS NOT A LICENSED REALTOR, DOES NOT ADHERE TO ANY ETHICAL STANDARDS AND HAS ABSOLUTELY NO EXPERIENCE IN, OR KNOWLEDGE OF, REAL ESTATE INVESTING.  FURTHER, THIS ONE-PAGE CONTRACT IS INTENTIONALLY VAGUE, OBSCURE AND UNCLEAR SO AS TO CONFUSE, BEWILDER AND STUPEFY THE SELLER.

BUYER SHALL HAVE THE RIGHT TO MARKET THE PROPERTY BY JACKING UP THE PRICE BY 50% OR MORE AND PLACING AN AD ON CRAIGSLIST. ALTERNATIVELY, BUYER SHALL HAVE THE RIGHT TO ASSIGN THIS CONTRACT TO A REAL ESTATE INVESTOR FOR 98% OF THE ARV, BECAUSE "THE PROPERTY ONLY NEEDS A FEW THOUSAND DOLLARS IN REHAB."

BUYER HEREBY INCORPORATES INTO THIS CONTRACT EVERY CONTINGENCY KNOWN TO MAN SO THAT BUYER MAY EASILY WIGGLE OUT OF THIS CONTRACT WITHOUT LIABILITY.

IF BUYER FAILS TO PERFORM UNDER TERMS OF THIS CONTRACT, SELLER SHALL HAVE NO REMEDY WHATSOEVER.  HOWEVER, IF SELLER FAILS TO PERFORM UNDER THE TERMS OF THIS CONTRACT, BUYER SHALL HAVE ALL LEGAL AND EQUITABLE REMEDIES AGAINST SELLER, INCLUDING LIQUIDATED DAMAGES IN THE AMOUNT OF $50,000.00.

IF SELLER IS OLD, LONELY AND SUFFERING DEMENTIA, REMEMBER THAT BUYER TOLD YOU TO SEEK LEGAL ADVICE, BUT YOU DECLINED.______ (<=Seller initial here).

@ John T

That is classic. I may need to use that!

Thanks for the laugh!

Derek Dombeck

@John T.

Day 5 of non-binding agreement:                                                                                             Seller contracts to sell to another buyer and has no duty to disclose this to original buyer/wholesaler.  

Day 7 of non-binding agreement:                                                                                    Original buyer (wholesaler) assigns the purchase contract to another investor (who never reviews the purchase agreement) and wholesaler collects a non-refundable assignment fee. 

Day 9 of non-binding agreement:                                                                                      Seller informs assignor (wholesaler) that the seller has a binding purchase agreement with a third party and therefore will not be selling to wholesaler.                                                                           

And the party who recommended this language be used is a "mentor"?  Riiiiiiiiiiiiight.  

@John T.  Truth in wholesaling, by most.

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