Wholesaling and Earnest Money Deposit

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Wholesaling and Earnest Money Deposit

Larry N.
Flipper/Rehabber · Silver Spring, MD · Member since 2009 · 96 posts · 17 votes

Hi, It's been said that one can do wholesaling with little to no money.  Most all sellers want either $2,500 or $3,500 refundable earnest money deposit before they will sign an agreement to sell their wholesale property. 

Then how can one get an agreement signed with seller if one does not have the $2,500 or $3,500 cash available?

So how can one be able to do a wholesale deal and get a legal equitable interest in the property without a written agreement to be able to market or assign the deal to an end-buyer?  Thanks!

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Chris Piper
Wholesaler · Mishawaka, IN · Member since 2013 · 438 posts · 346 votes
10y

@Larry N. There is ALWAYS a way. Don't go back to the drawing board as suggested, that's just ridiculous. It sounds to me like you are NOT dealing with motivated sellers. If they were REALLY motivated, they would accept almost any reasonable offer and terms.

I always put $20 as the earnest money amount. If the seller doesn't accept it, I'll walk away and move on to the next deal with someone who actually WANTS to sell their house. You need to make sure your purchase agreement states explicitly that you may assign the property to a 3rd party. This way the seller can't complain about you assigning to a cash buyer because they signed off on it in the purchase agreement.

You don't need to have skin in the game. Wholesalers start out as cheap as possible. Most people don't have $3,000 to throw at a wholesale deal in the beginning and you shouldn't do that anyway. Do the $20 earnest only with a motivated seller, if they want more, if you can do it, that's fine. I would never go over $100. Why? Because I don't NEED the deal, but the seller is motivated and desperate and they need me. Don't sweat any deal. If it doesn't work, walk away. There are plenty of deals out there to be made.

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  • Al Wilson
    Investor · Daphne, AL · Member since 2014 · 1k+ posts · 242 votes
    10y
    You can't. Back to the drawing board. Good luck.
    2Reply
  • Chris Boyd
    Realtor · Fort Lauderdale, FL · Member since 2016 · 271 posts · 144 votes
    10y

    To say that ALL sellers want 2,500 to 3,500 to wholesale their property is false. If you are active wholesaling, you know this. It comes down to effective negotiation skills and a willingness to be transparent with the seller. All the best!

    3Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    10y

    You mean non-refundable deposit, right? I wouldn't sign a contract with someone not intent on buying it themselves without such a payment. It is called "Having skin in the game". As @Al Wilson said, back to the drawing board.

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    0Reply
  • Chris Piper
    Wholesaler · Mishawaka, IN · Member since 2013 · 438 posts · 346 votes
    10y

    @Larry N. There is ALWAYS a way. Don't go back to the drawing board as suggested, that's just ridiculous. It sounds to me like you are NOT dealing with motivated sellers. If they were REALLY motivated, they would accept almost any reasonable offer and terms.

    I always put $20 as the earnest money amount. If the seller doesn't accept it, I'll walk away and move on to the next deal with someone who actually WANTS to sell their house. You need to make sure your purchase agreement states explicitly that you may assign the property to a 3rd party. This way the seller can't complain about you assigning to a cash buyer because they signed off on it in the purchase agreement.

    You don't need to have skin in the game. Wholesalers start out as cheap as possible. Most people don't have $3,000 to throw at a wholesale deal in the beginning and you shouldn't do that anyway. Do the $20 earnest only with a motivated seller, if they want more, if you can do it, that's fine. I would never go over $100. Why? Because I don't NEED the deal, but the seller is motivated and desperate and they need me. Don't sweat any deal. If it doesn't work, walk away. There are plenty of deals out there to be made.

    17Reply
  • Larry N.
    OP
    Flipper/Rehabber · Silver Spring, MD · Member since 2009 · 96 posts · 17 votes
    10y

    @Chris Piper Hi Chris, I was trying to get the property under contract so that I would have legal equitable interest to market and assign the deal to my cash end-buyer. These are wholesale deals that can be bought for 50% to 60% of ARV and are cash only deals, which is no problem for my cash buyers. I was wondering could I put something in the contract like "$2,500 EMD is due upon Buyer and Buyer's representative acceptance and approval of the inspection and purchase." So that after my cash buyer inspects the property and approves the purchase, I'll assign the contract to him for my fee and then he will be responsible for the purchase and the EMD? Thanks for your help.

    0Reply
  • Chris Piper
    Wholesaler · Mishawaka, IN · Member since 2013 · 438 posts · 346 votes
    10y

    @Larry N. You could try that, but typically they want the EMD when you sign the purchase agreement, or within a few days at most. If you know the property will sell to a particular cash buyer, you could sign the purchase agreement with the seller, get your cash buyer to inspect the property ASAP, and then collect a deposit from him to give to the title company for your purchase.

    Just make sure of 3 things to cover yourself:

    1. Make sure your purchase agreement states clearly that the property may be assigned.

    2. Make sure you let the seller know that you will get the EMD to the title company. NEVER give a seller an EMD, always give it to the title company.

    3. Make sure your purchase agreement has a "subject to partner's inspection" clause. Meaning if you can't sell the deal within the time-frame you designate in your "subject to" clause, you can back out by saying your "partner" wouldn't approve the deal.

    Keep in mind though, if you do a deal like this, make sure that it states in your assignment contract that your cash buyer's deposit is non-refundable. If you get a deposit from them and forward it to the title company and the cash buyer backs out for whatever reason, all you lose is the cash buyer's deposit, but nothing out of your pocket.

    4Reply
  • David Bokman
    Real Estate Investor/Wholesaler · Philadelphia, PA · Member since 2015 · 757 posts · 318 votes
    10y

    Ive never had a seller dictate how much the deposit should or will be. Actually, it hasn't ever even come up. If you keep running into this issue your doing something wrong or you have to learn to overcome this objective. Wholesaling is a sales and marketing business, and the skill set of negotiating is true value added skill to have which not everyone does. 

    #2 there is no such thing as a "wholesale property", its your job as a wholesaler to negotiate the price down from the seller to actually turn that property into a "wholesale deal". Most sellers still want retail prices regardless of condition. 

    2Reply
  • Adrienne Bryson
    Flipper/Rehabber · High Point, NC · Member since 2016 · 276 posts · 183 votes
    10y

    I usually put down $50-$100 EMD. $1000+ is normal for retail, but the idea is that the house is on the market and you're compensating them for taking it off the market for you.

    Considering I work with off market properties that isn't part of it, my EMD is just to show the seller I'm serious and committed to helping them and that if something drastic comes up and causes me to back out it wouldn't be a complete loss for them.

    That said, unless it really is something *drastic* I wouldn't back out. I'll close myself if I don't find a buyer during my inspection period. If you don't have enough confidence in your deal to close yourself, you have no business trying to push it off onto anyone else.

    1Reply
  • Adrienne Bryson
    Flipper/Rehabber · High Point, NC · Member since 2016 · 276 posts · 183 votes
    10y

    As for wholesaling with no money... That's a false promise. Nothing in life is free.

    I went the cheapest route possible. I found my own lists, hand wrote my own letters, bought my own paper/pens/envelopes/postage, etc. Even without paying for the easy way out, I still put in hundreds of dollars for books, supplies, gas, legal counsel, then for an EMD on my first deal, before I made any money. And it was a lot of work on my part.

    Many spend thousands of dollars buying lists and automating the process.

    You have to put something in to get something out.

    7Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    10y

    Some of this depends on your state. $20 may NOT be equitable interest depending on your state regs. Nobody will get away with that nonsense in Florida. $20 to tie up MY house? I SERIOUSLY wonder if THAT "wholesaler" would let someone tie up HIS house for $20? Anyone wanna wager on that?

    I actually thought one of the posters on this thread MIGHT be an ethical person until their BOGUS escape clause was mentioned. Another "wholesaler" promoting being dishonest. These frauds can complain all they want but their posts are an indication of their honesty and integrity. Again I would ask these frauds: would YOU like someone pulling that garbage on your mother, sister, brother, friends..or would you be made at someone else for their dishonesty. YOU have no problem promoting it.

    1Reply
  • Jonathan Bueno
    Real Estate Investment Consultant · San Antonio, TX · Member since 2015 · 22 posts · 25 votes
    10y

    @Larry N. from my experience not too many sellers ask for a big EMD. I normally put $20 dollars unless they specifically ask for it. And if they ask for a bigger EMD I negotiate it to where the EMD is put in after the option period is over. I normally put a 14 day option to have enough time to work the lead. From there you get the investor/buyer to give you a non refundable EMD and send that over to title. Hope this helps!

    1Reply
  • Jim Means
    Homeowner · Smyer, TX · Member since 2015 · 29 posts · 7 votes
    10y

    If you NEVER give the EMD to the seller but to the titel company, how does that work? Do you say I'll give $100 emd just sign here, They do, You say thanks and shake thier hand then head for the title company? Won't they feel like they just singed thier home over to a stranger, and got nothing?

    1Reply
  • Ricardo Rosales
    Real Estate Investor · Katy, TX · Member since 2016 · 109 posts · 46 votes
    10y

    @Jim Means that's exactly what I do, We do 10$ EMD to title company (You have no idea how many problems we find during title search because the owners do not disclose the truth many times) , but on my offers there is no contingency as I am willing to buy the property myself to flip it 90% of the times, we only wholesale a few to other friends and investors. At the end of the day the real job of a wholesaler is to solve that home owner's problems and make a profit while doing it. Many people get it backwards, that's why those people under stress are willing to do almost anything to get rid of the problem (property). Some times we do 100 some other ones 500 it all depends on the condition of the property as well.

    0Reply
  • Jim Means
    Homeowner · Smyer, TX · Member since 2015 · 29 posts · 7 votes
    10y

    I was of the understanding at most you & seller would go to a notary sign the agreement, notarize the agreement, give the EMD to seller, then take the agreement to the title company. Is that all wrong?

    0Reply
  • Larry N.
    OP
    Flipper/Rehabber · Silver Spring, MD · Member since 2009 · 96 posts · 17 votes
    10y

    @Jonathan Bueno Hi Jonathan, the "sellers" that you mentioned are wholesalers that are selling. These are not mom and pop homeowners selling. The wholesalers in this area generally require $2,500 or $3,500 EMD to sign the agreement and take the property off the market. A lot of people suggest networking and working with other wholesalers to partner with them to wholesale their deals or to sell your deals. I have rehabbers and cash buyers that need good deals but I've noticed a lot of these wholesalers have over inflated priced properties. Yes, with the non-exclusive option their property is not taken off the market therefore not requiring a large EMD. Thanks.

    0Reply
  • Chris Piper
    Wholesaler · Mishawaka, IN · Member since 2013 · 438 posts · 346 votes
    10y

    @John Thedford I think you completely missed the point of my response on here. I do not promote being dishonest. I suggested the "escape clause" because people make mistakes. You put a house under contract that you just can't move, or you paid too much, etc. When I put a house under contract, I intend to assign it to a cash buyer quickly. I don't WANT to back out of any deal unless it's absolutely necessary.

    As for the $20 not flying in Florida, well good thing I don't wholesale in Florida I guess. That is what I use personally, everyone is entitled to put whatever amount of earnest money down that they choose to. I'm helping the seller out of a bad situation, not the other way around. If they won't accept the $20 for earnest money, no biggie. On to the next deal for me. Plenty of good deals out there.

    By the way, what "FRAUDS" are complaining? Haven't seen anyone complaining. If a seller said they wanted $2,000-$3,000 for earnest money from me, I'd laugh all the way out the door, and they can wait till their house gets foreclosed on and then I can buy it from the bank for half of what I would have paid them if they had accepted my offer. Good times!

    5Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    10y

    @Chris Piper

    I take posts at face value. You suggest using a clause that is a LIE. Nuff said.  As to your working in Florida, Florida has very good laws to keep people like you from operating and to protect the public.

    1Reply
  • Chris Piper
    Wholesaler · Mishawaka, IN · Member since 2013 · 438 posts · 346 votes
    10y

    @John Thedford Thanks for your mesmerizing insight. You keep plugging along and knocking down hundreds of dollars at a time with that 3% commission you get. I'll stick to helping sellers get out of a jam and making $5k-$10 a pop. And you stay "HONEST" and keep showing people "loopholes" on how to avoid paying taxes.

    2Reply
  • Melton Thomas
    Member since 2018 · 3 posts · 2 votes
    7y

    FYI I've wholesaled several deals in Florida, and I put no more than $10 EMD on each. in fact, as a newbie these were my very first deals. I the only things of value I had to offer were my brains, sweat equity and hassle to find and close my deals.

    One that thing that real estate game has taught each you is that anything is possible with the right mindset, a strong work ethic, and a little luck. 

    2Reply
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