How are you actually getting paid?

Question

Hey everyone, first time poster here.  I have interest in starting my real estate journey with wholesaling, but from all the reading and watching videos I have done, I'm still confused on one little thing.   I understand I might make an agreement to buy/assign the property for $10k, but then assign it for $15k (hypothetically) to end buyer.  How do you get the $5k difference for your fee?  2 seperate checks, 1 to seller, 1 to you?

Brian Truman · Answer

Billy Baumann,

That is a GREAT question! That is the ultimate question all us wholesalers want to know! Disclaimer here: I am going to tell you how I do it here in the great State of Washington.

There are two ways of getting paid:

1) You have what is called an Assignment Agreement. This is a legal document that is between you and the person you are assigning the contract to. You can do this outside of escrow and the buyer will then give you a check and you are on your way! (there is quite a bit that goes into this agreement, I can explain more if you are curious)

2) You can have an assignment addendum that assigns the buyer the rights and responsibilities of the contract, and thus get paid at closing, from Escrow.

I have been paid in both of those manners. I hope that helps! Happy Hunting!

Brian Truman · Answer

Billy Baumann, sorry about that. You would have to give the assignment fee back to the person you were going to assign the deal to. I have the buyer also deposit earnest money. If the seller backs out of the deal... then the buyer you assigned the deal to, or you, if you deposited the EM, would/should get it back.

I had to give a $27,000 assignment fee back to the guy that was going to buy the house I had under contract because the seller backed out of the deal. That was a really bad day...

Steven Leigh · Answer

Billy Baumann How was the REIA meeting?

Brian Truman · Answer

Billy Baumann, for sure. The assignment agreement will usually have language in it for  you, the person assigning the deal, being held harmless for any defects in the property. Also, if the seller ends up backing out of a deal (which actually happened to me...), you will either have to give the money back, or get to keep it depending on how the assignment agreement was written up. I have seen some deals where the seller has backed out of the deal, and the person assigning gets to keep all or a portion of the assignment fee. This is not usually good business if you want to work with that buyer again someday....

Steven Leigh · Answer

Have a great time at the REIA meeting and don't be too much of a sponge. Introduce yourself to as many people as possible and tell them you are just starting out.

Also, just a note to go ahead and ignore all the negative nancies who will try to convince you that wholesaling doesn't work, that it's illegal, that other strategies are much better, etc. You will get a LOT of that from REIA folks. One, they are afraid you will snap up all the good deals, and two, a lot of the older guys are set in their ways and think theirs is the only way to do things.

Billy Baumann · Answer

@Steven Leigh Thank you for the phenomenal explanantion.  I'll shoot you a PM...Just an FYI going to my first REI meeting tonight.  Just looking to be a sponge for the next couple of weeks with all the information to absorb.

Steven Leigh · Answer

I do assignment fees that come out of the closing so I get paid by the title company from the buyer's funds. So it goes like this.

$100,000 value house that I get under contract with the seller for $50,000 because it needs repairs, they are motivated, etc. We sign a purchase contract that says I have the right to buy it at $50,000 and we close on or before 30 days from now.

The buyer agrees to buy it for $60,000 though they are actually buying the contract. We sign an assignment contract that is assigning my full rights in the previous contract to this buyer for a price of $60,000.

We go to closing, and I make sure the title agent knows I get the difference of $10,000 as an assignment fee. The buyer wires in the funds of $60,000 plus whatever his closing costs may be, so say it's $64,300 or whatever. The HUD (a breakdown of the whole transaction and all the fees) will have all of the buyer's fees, all of the seller's fees, etc. The seller gets their $50,000 minus whatever taxes and fees that come out of it. The buyer gets the house.

The title company makes out a check for me for $10,000.

Does that make it clearer?

PM me if you need any extra info, contracts, or I could even send you an example HUD.

Billy Baumann · Answer

@Brian Truman thanks again for the great response.   A little deeper follow up question.....When you say "Also, if the seller ends up backing out of a deal, you will either have to give the money back, or get to keep it depending on how the assignment agreement was written up".   What money would I get back from the seller?  The earnest money deposit? Sorry, I just want to make sure I don't have any stone left unturned.

Brian Truman · Answer

If that is something you would like to get drawn up, make sure you are working with a reputable real estate attorney, and have them draft one up for you.

Billy Baumann · Answer

@Brian Truman thank you so much for the initial response.  Great information that I'm sure I will have some follow up questions to ask ya.   If you don't mind, can you explain a little more about what goes into an agreement?

How are you actually getting paid?

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