how to i get my earnest money deposit from my end buyer ?

27 Replies

Hi My name is Alex I live in New Jersey. I understand pretty much everything about wholesaling, but i haven't done any deals yet. i was wondering, once i get my first property and a agreement of purchase signed from the seller, i go to my real estate attorney and give him the contract then he do the title research of the property, Right? Next i have my cash buyer, and he agree to buy the property, so i have this"assignment of contract"that he signs. Now this is my question. how to make sure i get my earnest money deposit from my buyer . do i ask him right away after signing the contract? If he said yes.Does he/her have to write a check under my name or it will be deposit in an escrow account? what if he said Not I forgot my checkbook ill do it another day. or should i ask my title company to collect the balance for me. Please help. I don't want to harass my cash buyer and i don't want to lose the deal as well   

Hi Alex,

I live in NJ as well. Looking to wholesale as well. I'm not completely sure but I thought the earnest money deposit goes into escrow as well. Otherwise, it seems unlikely that the home owner would ever give it back if they don't spend it. 

EM would be made out to a title company or an attorney.

Read up on real estate brokering laws. You are very likely unknowingly acting as an unlicensed real estate broker.

Hi Alex.   I dont' know everything about whole-selling.   With that said,  Anytime you are selling something and money is not exchanged right away.  You should enter a purchasing contract.  You are selling a contract.  So, make a purchasing contract to sell your contract.

Originally posted by @James Wise :

EM would be made out to a title company or an attorney.

Read up on real estate brokering laws. You are very likely unknowingly acting as an unlicensed real estate broker.

James is correct.  In most cases, If you show your buyer the house before you have the deed.  You are selling a house you don't own. Aka brokering, You are acting as a broker and need a Restate License.   What is league for you to do is sell a contract.   You can only show the buyer your contract.

Now.  you make be thinking "how dose the buyer see the house before buying it?"  Here is an ideal oh now to do assignments. (take with a fist full of salt)

I go out and get a contract with a seller to buy their property with a long inspection period and assignment rights.

I show my buyer the property contract.  I make a assignment contract with buyer.  In the assignment contract by buyer agrees to assume my place in the property contract.  My Buyer will play me X amount on the same day the property contract ends it's inspection period. 

My buyer now is in the contract and can now go view the seller's property.  My buyer will assign the same contract back to me If he dose not like what he sees.  We release my buyer form our assignment contract in the same stroke.

Ask an attorney to create contracts for you It cost about $150 per hour here in Auburn AL. 

Ask an attorney to reviewing and editing your own creations is an option too

Agree with previous posts.  Sounds like brokering without a license to me.  Good luck.

thanks everyone.

I just want to make sure, I don't need a real estate license to wholesale, right? I just need the right paperwork (purchase agreement signed from the seller stating (to protect myself) "i have 14 day inspection period" in case i don't find a buyer , i can back out and still get my earnest money back. And number# 2 a purchase agreement   Signed from my buyer along with at least $3000 NON REFUNDABLE earnest money deposit (so he/she can back out of the deal)

I apologize for my poor spelling this morning.  I can't seem to find the edit button. Please read past that. 

Originally posted by @Alex Palma :

thanks everyone.

I just want to make sure, I don't need a real estate license to wholesale, right? I just need the right paperwork (purchase agreement signed from the seller stating (to protect myself) "i have 14 day inspection period" in case i don't find a buyer , i can back out and still get my earnest money back. And number# 2 a purchase agreement   Signed from my buyer along with at least $3000 NON REFUNDABLE earnest money deposit (so he/she can back out of the deal)

Alex: nothing personal...but....you are posting that you are entering into contracts to purchase property and then stating if you cannot find a buyer you back out. Are you telling the homeowners this or are you leading them to believe they have a concrete deal. That is EXACTLY what is wrong with "wholesaling": misleading homeowners. Put yourself or your loved ones in their shoes. How would you feel being lied to?

Originally posted by @John Thedford :
Originally posted by @Alex Palma:

thanks everyone.

I just want to make sure, I don't need a real estate license to wholesale, right? I just need the right paperwork (purchase agreement signed from the seller stating (to protect myself) "i have 14 day inspection period" in case i don't find a buyer , i can back out and still get my earnest money back. And number# 2 a purchase agreement   Signed from my buyer along with at least $3000 NON REFUNDABLE earnest money deposit (so he/she can back out of the deal)

Alex: nothing personal...but....you are posting that you are entering into contracts to purchase property and then stating if you cannot find a buyer you back out. Are you telling the homeowners this or are you leading them to believe they have a concrete deal. That is EXACTLY what is wrong with "wholesaling": misleading homeowners. Put yourself or your loved ones in their shoes. How would you feel being lied to?

 Alex,  we don't know what he has lead the homeowners to believe.  He may or may not have explained to the homeowners his desire to exit the deal.

There is no need to demonize a class of professionals many of whom are the only ones that can help out a given seller.

I do not whole sell my self.

Originally posted by @John Thedford :
Originally posted by @Alex Palma:

thanks everyone.

I just want to make sure, I don't need a real estate license to wholesale, right? I just need the right paperwork (purchase agreement signed from the seller stating (to protect myself) "i have 14 day inspection period" in case i don't find a buyer , i can back out and still get my earnest money back. And number# 2 a purchase agreement   Signed from my buyer along with at least $3000 NON REFUNDABLE earnest money deposit (so he/she can back out of the deal)

Alex: nothing personal...but....you are posting that you are entering into contracts to purchase property and then stating if you cannot find a buyer you back out. Are you telling the homeowners this or are you leading them to believe they have a concrete deal. That is EXACTLY what is wrong with "wholesaling": misleading homeowners. Put yourself or your loved ones in their shoes. How would you feel being lied to?

 Thanks John. 

In my contract i'm  gonna state "i have 14 inspection period. If property doesn't pass inspection , EM shall be returned in full and contract get Cancelled"

I will use that, as an exit strategy in case i dont find a buyer , but the seller won't know

Originally posted by @Wilson Lee :
Originally posted by @John Thedford:
Originally posted by @Alex Palma:

thanks everyone.

I just want to make sure, I don't need a real estate license to wholesale, right? I just need the right paperwork (purchase agreement signed from the seller stating (to protect myself) "i have 14 day inspection period" in case i don't find a buyer , i can back out and still get my earnest money back. And number# 2 a purchase agreement   Signed from my buyer along with at least $3000 NON REFUNDABLE earnest money deposit (so he/she can back out of the deal)

Alex: nothing personal...but....you are posting that you are entering into contracts to purchase property and then stating if you cannot find a buyer you back out. Are you telling the homeowners this or are you leading them to believe they have a concrete deal. That is EXACTLY what is wrong with "wholesaling": misleading homeowners. Put yourself or your loved ones in their shoes. How would you feel being lied to?

 Alex,  we don't know what he has lead the homeowners to believe.  He may or may not have explained to the homeowners his desire to exit the deal.

There is no need to demonize a class of professionals many of whom are the only ones that can help out a given seller.

I do not whole sell my self.

It is not demonizing a "class of professionals"....my point is misleading a homeowner is nothing more than a lie.

Originally posted by @Alex Palma :
Originally posted by @John Thedford:
Originally posted by @Alex Palma:

thanks everyone.

I just want to make sure, I don't need a real estate license to wholesale, right? I just need the right paperwork (purchase agreement signed from the seller stating (to protect myself) "i have 14 day inspection period" in case i don't find a buyer , i can back out and still get my earnest money back. And number# 2 a purchase agreement   Signed from my buyer along with at least $3000 NON REFUNDABLE earnest money deposit (so he/she can back out of the deal)

Alex: nothing personal...but....you are posting that you are entering into contracts to purchase property and then stating if you cannot find a buyer you back out. Are you telling the homeowners this or are you leading them to believe they have a concrete deal. That is EXACTLY what is wrong with "wholesaling": misleading homeowners. Put yourself or your loved ones in their shoes. How would you feel being lied to?

 Thanks John. 

In my contract i'm  gonna state "i have 14 inspection period. If property doesn't pass inspection , EM shall be returned in full and contract get Cancelled"

I will use that, as an exit strategy in case i dont find a buyer , but the seller won't know

Alex: the last line in your post states:  "I will use that, as an exit strategy in case I don't find a buyer, but the seller won't know".

This is EXACTLY what I was referring to about misleading a homeowner. "the seller won't know"? 

Originally posted by @Wilson Lee :
Originally posted by @James Wise:

EM would be made out to a title company or an attorney.

Read up on real estate brokering laws. You are very likely unknowingly acting as an unlicensed real estate broker.

James is correct.  In most cases, If you show your buyer the house before you have the deed.  You are selling a house you don't own. Aka brokering, You are acting as a broker and need a Restate License.   What is league for you to do is sell a contract.   You can only show the buyer your contract.

Now.  you make be thinking "how dose the buyer see the house before buying it?"  Here is an ideal oh now to do assignments. (take with a fist full of salt)

I go out and get a contract with a seller to buy their property with a long inspection period and assignment rights.

I show my buyer the property contract.  I make a assignment contract with buyer.  In the assignment contract by buyer agrees to assume my place in the property contract.  My Buyer will play me X amount on the same day the property contract ends it's inspection period. 

My buyer now is in the contract and can now go view the seller's property.  My buyer will assign the same contract back to me If he dose not like what he sees.  We release my buyer form our assignment contract in the same stroke.

Ask an attorney to create contracts for you It cost about $150 per hour here in Auburn AL. 

Ask an attorney to reviewing and editing your own creations is an option too

In one post you state you don't "wholesale" and in another you state you do? I am confused!

Originally posted by @Wilson Lee :
Originally posted by @John Thedford:
Originally posted by @Alex Palma:

thanks everyone.

I just want to make sure, I don't need a real estate license to wholesale, right? I just need the right paperwork (purchase agreement signed from the seller stating (to protect myself) "i have 14 day inspection period" in case i don't find a buyer , i can back out and still get my earnest money back. And number# 2 a purchase agreement   Signed from my buyer along with at least $3000 NON REFUNDABLE earnest money deposit (so he/she can back out of the deal)

Alex: nothing personal...but....you are posting that you are entering into contracts to purchase property and then stating if you cannot find a buyer you back out. Are you telling the homeowners this or are you leading them to believe they have a concrete deal. That is EXACTLY what is wrong with "wholesaling": misleading homeowners. Put yourself or your loved ones in their shoes. How would you feel being lied to?

 Alex,  we don't know what he has lead the homeowners to believe.  He may or may not have explained to the homeowners his desire to exit the deal.

There is no need to demonize a class of professionals many of whom are the only ones that can help out a given seller.

I do not whole sell my self.

 Wilson,

Whether or not he tells homeowners his intent or not is 1 issue but the separate issue is he is brokering without a license. His intent is to find a buyer for a property owned by this seller and earn some money while doing it. That is EXACTLY what the role of a broker is.

Wholesaling with out a license is not illegal as long as you have the right paperwork signed. I Will be simply signing a contract and then assigning that contract to another, and therefore i wouldn't be breaking the law. I will not be selling a property, ill be selling the ownership of a real estate contract. 

What i consider illegal, is getting a purchase contract signed from the seller, then advertise that property on craiglist to find buyers, because you don't own the property. that's illegal!

Most people think wholesaling is easy money. I find it very hard. There is a lot of competition out there, you have to find deals cheaper than other investors in order to sell them. I would rather start flipping houses if i just had the funds, because experience, i already have it. 

Thanks for all your opinions i'm not trying to offend anybody, i'm just looking to start my real estate career, that's what i'm here, in this forum asking questions to those who are experienced!

Originally posted by @John Thedford :
Originally posted by @Wilson Lee:
"Here is an ideal on now to do assignments"...

In one post you state you don't "wholesale" and in another you state you do? I am confused!

John, I think Wilson was being THEORETICAL in his explanation about how he would Wholesale - if he was a Wholesaler. Cheers... 

Originally posted by @Brent Coombs :
Originally posted by @John Thedford:
Originally posted by @Wilson Lee:
"Here is an ideal on now to do assignments"...

In one post you state you don't "wholesale" and in another you state you do? I am confused!

John, I think Wilson was being THEORETICAL in his explanation about how he would Wholesale - if he was a Wholesaler. Cheers... 

 Than you Brent for clarying. John , sorry for the confusion, English is my second language. When i write a post, i think in spanish and write in English, that's why may find my posts to understand. 😀

Originally posted by @Alex Palma :
Originally posted by @Brent Coombs:
Originally posted by @John Thedford:
Originally posted by @Wilson Lee:
"Here is an ideal on now to do assignments"...

In one post you state you don't "wholesale" and in another you state you do? I am confused!

John, I think Wilson was being THEORETICAL in his explanation about how he would Wholesale - if he was a Wholesaler. Cheers... 

 Than you Brent for clarying. John , sorry for the confusion, English is my second language. When i write a post, i think in spanish and write in English, that's why may find my posts to understand. 😀

 Hi Alex. My post was not directed at you. John had asked Wilson Lee to explain HIS posts, and I was responding to John about that. All the best...

Alex, I am a real estate broker and investor here in Florida. I wholesale deals all the time without putting them through my brokerage; through a completely separate corporate entity. There is a process that you need to follow to do so in a legal capacity. The laws in NJ are certainly different than they are in FL. I grew up there but have been in FL since '95 so I certainly would not want to try to offer you a 'legal' response to your question as it seems many in here are attempting to do. 

I would suggest that you contact a local real estate attorney - that specializes in working with investors - and ask them to guide you through the appropriate process. I do know with absolute certainty that you do not need do be a licensed real estate agent to wholesale properties in NJ; if you do it properly!

I would also suggest that you change your verbiage with your 'end buyer'. Rather than taking an 'earnest money deposit' or 'deposit' I would suggest collecting a non-refundable 'assignment fee'. While common practice in each State is different and many wholesalers do things differently, when I am wholesaling properties I do not offer the 'end buyer', which is typically a cash investor with experience in the industry, an inspection period. I work on a  first come / first serve basis. The first person to bring me a contract with a non-refundable assignment fee gets the property. This avoids the necessity of collecting any type of refundable fees and potentially losing the contract. My end buyer performs his inspections etc prior to giving me a contract on the property. 

I wholesale in this capacity because I want to make sure that my end buyer is actually going to purchase the property and not just putting it under contract with the intention of trying to wholesale it as well. In the event the end buyer does not close I now have his non-refundable assignment fee to put towards closing the property when I have to do so per my initial contractual obligations with the seller. 

I might also suggest, moving forward, that you work in a more transparent capacity with your sellers and let them know that your intent is to help them get their property sold in a wholesale capacity. If they understand your intent at the beginning you will find they are often agreeable to it. This should help keep any type of potential negativity coming back from the seller as well in the event you can not get the property wholesaled. 

Yea sorry,  My post was not very clear.  I would really like an edit button.

Originally posted by @Sean Parkes :

Alex, I am a real estate broker and investor here in Florida. I wholesale deals all the time without putting them through my brokerage; through a completely separate corporate entity. There is a process that you need to follow to do so in a legal capacity. The laws in NJ are certainly different than they are in FL. I grew up there but have been in FL since '95 so I certainly would not want to try to offer you a 'legal' response to your question as it seems many in here are attempting to do. 

I would suggest that you contact a local real estate attorney - that specializes in working with investors - and ask them to guide you through the appropriate process. I do know with absolute certainty that you do not need do be a licensed real estate agent to wholesale properties in NJ; if you do it properly!

I would also suggest that you change your verbiage with your 'end buyer'. Rather than taking an 'earnest money deposit' or 'deposit' I would suggest collecting a non-refundable 'assignment fee'. While common practice in each State is different and many wholesalers do things differently, when I am wholesaling properties I do not offer the 'end buyer', which is typically a cash investor with experience in the industry, an inspection period. I work on a  first come / first serve basis. The first person to bring me a contract with a non-refundable assignment fee gets the property. This avoids the necessity of collecting any type of refundable fees and potentially losing the contract. My end buyer performs his inspections etc prior to giving me a contract on the property. 

I wholesale in this capacity because I want to make sure that my end buyer is actually going to purchase the property and not just putting it under contract with the intention of trying to wholesale it as well. In the event the end buyer does not close I now have his non-refundable assignment fee to put towards closing the property when I have to do so per my initial contractual obligations with the seller. 

I might also suggest, moving forward, that you work in a more transparent capacity with your sellers and let them know that your intent is to help them get their property sold in a wholesale capacity. If they understand your intent at the beginning you will find they are often agreeable to it. This should help keep any type of potential negativity coming back from the seller as well in the event you can not get the property wholesaled. 

 Thanks Sean, so far this is the best advice i have received.

once you sign a contract to purchase a property your are the "equitable owner" and can market that property to others just as if it was your own.   It's not illegal, nor is it "acting as a broker".  As the contract holder, you aren't representing the seller - you are selling your equitable interest in the property. 

Originally posted by @Jason Mitchell :

once you sign a contract to purchase a property your are the "equitable owner" and can market that property to others just as if it was your own.   It's not illegal, nor is it "acting as a broker".  As the contract holder, you aren't representing the seller - you are selling your equitable interest in the property. 

 Jason, good luck trying that in Ohio (and which other States?):-

http://www.biggerpockets.com/forums/93/topics/1847...

Perhaps you are unaware that Wholesaling (where there is no intention of taking Title into your own name) is increasingly frowned upon by the Regulators, and sometimes specifically prohibited. There is plenty of background information on this subject right here on the BP Forums, and this post will not be the end of it. Welcome to BP. Cheers...

Originally posted by @Wilson Lee :

Yea sorry,  My post was not very clear.  I would really like an edit button.

 Hi Wilson. There is an "Edit" Button at the top right hand corner of each persons posts (next to the Date) that stays there for about 15 minutes only, after which it becomes an "Update" Button that allows you to clarify your post by adding a certain number of words underneath your original post. Cheers...

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