Wholesaling: Sellers want "Proof of Funds"

20 Replies

Why would they need to see pof? I am transparent with sellers and let them know that I am interested in their property. I will do one of three things once we have agreed on and signed a contract. I will buy property, fix it and sell it, I will buy property and rent it, or I will pass it along to one of my partners/ investors. In our contract we have inspection period, and contract period. If I sign a contract, that house is going to be sold. I believe you can solve any seller concerns just by communication.

Sadly,I think you will find a lot of wholesalers use fake POF letters they get from their hard money lender buddies.Most desperate homeowners don't know any better and accept it at face value without investigating the validity of the letter.

@Don Ireland and @Chris Boyd why would they not want POF. They are signing a contract for you to buy their house. Why would a seller want to waste their time in signing a contract with a buyer that cannot buy their property, unless you have a tract record of buying and selling properties. Anyone can pretend to be an investor just as @Brandon Battle has stated.

Jacob

@Jacob Anderson I haven't had that issue. I find that if you are clear with them, they are fine with it. It also helps I guess that I deal with distressed situations, so the seller usually needs me.

Hi @Don Ireland

In an ideal world you would have a proof of funds to buy the property, even if your intention was to wholesale it before closing. However, if you are just starting out and don´t have liquid cash or a track record, then you should just be honest with him and say what your intentions are, but frame it in a way so that he knows you have a very clear idea plan for finding him a buyer.

If he is skeptical and reluctant to sign you could always offer to increase your earnest money deposit and/or reduce your inspection period. At least then he´ll see that you are serious about finding a buyer within a fixed amount of time before forfeiting your EMD.

The POF letters are a result of this boom in wholesaling. Basically they are asking for POF because so many "wholesalers" put houses under contract they can't buy and then shop them and if they cant sell them they just walk. It started with the banks and has kinda trickled down to be an industry standard. I had a few wholesalers ask me for POF's before I could even look at a property. Pretty comical, but its because of all the people not only putting houses under contract they can't buy, but doing it at prices they cant sell at, so they can't perform.

I feel that that you should be transparent if you do not have the funds. The worst thing that could happen is you lose this deal. Then, you just go find another.

@Don Ireland do not put a property under contract unless you are quite certain that you will be able to wholesale it to a new buyer. It would be unethical to tie up the property leading the Seller to believe they have the house sold when actually you don't know if you can close. When Sellers contact me to verify a Proof of Funds, if they ask if this is contingent upon anything, I must be honest and tell them that yes, it is dependent upon the Buyer having a Qualified End Buyer under contract at the time the funds are provided. 

If the property has been available for some time or if the Seller is truly distressed, they may not care what the circumstances are. I've told Sellers that while I am not an attorney or real estate broker, but if they want to protect their position, I've seen others counter with language that states that the Buyer must produce evidence within perhaps 7-10 days that they have an End Buyer under contract that can be verified by a third party Escrow/Title company. The Escrow/Title company can confirm that indeed the End Buyer has a closing set up with them and funds in escrow. This way, the Seller gets their property sold without tying it up for a long time, the Seller's realtor gets their commission, the Buyer gets their property and profit when he sells to the End Buyer, and the End Buyer gets the property he wants. Win-win-win-win.

Frankly, I'm surprised all sellers don't ask to see proof of funds from wholesalers. As best as I can tell, most wholesalers have little to no money of their own, so they insert themselves as a middle man to try to skim some profit off of the transaction between buyer and seller. By definition, as I understand the definition, a wholesaler has no intention of buying the product, so if they are unable to locate a buyer they typically walk away leaving the seller with nothing. Because this is the case, they are usually going to be working with people who are desperate to unload a property. Because there are umpteen million channels that sellers can find buyers, I really see very little value proposition here. 

I'm sure some wholesalers will argue that they provide a great service, and hey, if you are making it work and not getting sued or shot, more power to you. I can only say that if I were a seller, I would have 3 stipulations: 1, a healthy dose of earnest money, and 2, an escape clause that allowed me to continue shopping my own house around on my own while the wholesaler was doing the same thing, and 3, the obligation of the wholesaler to buy the house if they couldn't locate another buyer in a suitable amount of time. In a real estate contract, typically the only 2 major contingencies (which the seller doesn't have to take) that sink a deal is an unknown material defect found during an inspection, and a buyer's inability to get financing. Some sellers won't accept any contingencies, and some won't accept financing contingencies, whereas in a wholesale situation the seller really doesn't have any idea what kind of buyer the wholesaler is going to locate.

When I pay cash for a house, the seller almost always asks me for proof of funds, and I'm buying it directly from them. If I were the seller I'd want to see it from the wholesaler and from the potential buyer.

Hi Don

I agree with others who point out that POFs have become kind of like a Ponzi scheme. They look real but are not. They are only good for the one day they are issued, if that, in most cases.

Hope this helps 

Call Velocity Capital, visit the website first, but call them and speak to Michael. Get your general information on transactional funding 

Print off a proof of funds letter. 

Build a crazy buyers lists.

And when you speak to sellers tell them that you buy and sell real estate using private funds but may assign the contract over to a partner. 

Always be building your capital base and your buyers list. 

Originally posted by @Anore' Allen:

Call Velocity Capital, visit the website first, but call them and speak to Michael. Get your general information on transactional funding 

Print off a proof of funds letter. 

Build a crazy buyers list.

And when you speak to sellers tell them that you buy and sell real estate using private funds but may assign the contract over to a partner. 

Always be building your capital base and your buyers list. 

The POF is not fraudulent, sellers can call the number on it and speak with them directly. Yes you have to have an end buyer lined up to use the funds but you also can legally say 'you have private money you use to close ' no lies, no tricks just a simple solution.

@Don Ireland  

Every wholesale deal that we do is because we simply make sure the numbers work for us and our end buyers. You should make the seller pitch you to buy their house, not the other way around. Never listen to anyone who is not activity and successfully wholesaling properties, because it's just a bunch of blah, blah, blah. Wholesaling is a great way to get into the industry and start generating capital to then engage in the many profit areas of real estate. Be great and ignore the echoes of the negative.   

Carl,