Are you obligated to buy on a wholesale?

26 Replies

I am trying to run through the whole process of wholesaling but need a clear answer since I keep finding different ones.

Bianca is about to lose her house to the bank. She reaches out to Tom for a potential buy.

Tom researches her house and finds that her area is $150k - House is in good shape.

He offers Bianca $100k to buy the house. They sign an Assignment Contract stating that Tom can buy or may have the right to sell his contract to another buyer. (correct?)

Bianca gives him 21 days to close.

A) Now, lets say Tom does not find another investor to buy within the 21 days, is he OBLIGATED to buy the house for $100k now? or can he walk away empty?

B) Tom has found a an investor and offered him $125k for the house. He brings his contract to the closing attorney (correct?) and they handle the transaction leaving Tom with a profit of $25k?

@Brittany Smeek

Yes he would be obligated to buy. If he can not close or assign the contract he risks forfeiting his earnest money deposit since he breached a contract.

This is not the way I would wholesale a deal.

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@Anthony Gayden  

I've heard some people leave a $10 deposit for the contract incase of breach? 

Also, it would be better to actually have a list of potential buyers to show them the house once you get it correct? 

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The way I understand it you would just forfeit your earnest.

@Sebastian Lee So basically telling them sorry I couldn't go on with the deal? Or is there a better way of approaching this, tell them youll close within 7 days but not writing a contract, and once you FIND a buyer you then write the assignment contract with them both and close?

Say your grandmother was about to lose her house to the bank. Then Tom comes along and makes an offer to buy it and save her from foreclosure. How excited is grandma that she won't have to go through the shame of having a foreclosure on her credit. She signs a contract that has some wording about assigning it to another person, but shes so excited to finally have this nightmare over with, that she doesn't ask what that means. He gives her $10 earnest money to show that hes a "serious buyer". Then, 21 days later, Tom comes back and says "sorry, I couldnt find anyone to buy your house, and I don't have any money, but you can keep the $10". How would you react if someone did that to someone you love? That's, essentially, what 90% of wholesalers are doing to people.
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@Jason DiClemente That is exactly what I was thinking about. What would be the best scenario to handle a wholesale transaction? To talk to the house owner that you could buy it for "x" amount (maybe go there and get pictures / check for damages) and tell them you'll reach back to them in a few days. In those few days you find an investor who is willing to buy. If he agrees, that is when you go on with the contract? Therefore, they give you example 5 days to "think" about it.

As a wholesaler, if you put a property under contract and do not close you run the risk of losing your earnest money deposit.

You can add contingencies to the contract that will allow you to back out of the deal in the event you are unable to find a end buyer.

Regards,

Johnetta G. Paye, Esq.

@Brittany Smeek I don't know Canadian law but in the US, those types of real estate transactions usually require a license. Wholesalers circumvent the laws by claiming that they are selling the contract, and not the property. If you don't have a contract to sell, I'm not sure how you use that loophole. I would probably have investors with cash to buy already lined up if you are going after people in that desperate of a situation. In my opinion, it would be the most ethical way to go about it.
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Please don't offer $10 to someone facing foreclosure, telling them you "will buy their house cash" and then when you can't find a buyer, say "sorry, but you can keep the $10". I agree with @Jason DiClemente think about it as if it were your family member.

WHY does everyone assume wholesaling is done in a sleazy way?!

Wholesaling is her BEST BET to get out of foreclosure! Wholesaling is not "sign a contract and sell the contract without telling the seller" This is NOT wholesaling.

Wholesaling IS:

Hey seller, if you need to sell your house fast, I have a way I could help. I have a list of 2000 buyers eager to buy a house fast in cash and your house is a really good fit for this. Instead of dealing with 2, 3, 4 investors like us trying to vet everyone, why not sign with us and I will mass mail the contract to all my buyers. You have a lot more chance to get it sold fast. Oh heck since you are in a bid I will forfeit my fee to increase your chances. It's not like I am doing a lot of work here.

Green?

Seller: OMG you are a sweetheart bless your heart!

Yes the last deal Iwholesales  I didn't charge an assignment fee because they were really in a bind and she needed to sell fast.

Get it? ... stop assuming everyone that does wholesaling is a scumbag!

@Jason DiClemente

@Brian Pulaski

Thank you for your answers. Yes, the $10 sounded a little ridiculous to me and I didn't understand it, I thought maybe any amount was needed for a 'deposit' for you to own the property after you sign a contract. 

Just trying to clear things up on how to approach wholesaling & how to correctly handle the situations where you cannot find a buyer. 

@Jerryll Noorden Every business you go into there will be scammers someway or another!

You also brought in a good tip; Gather investors first and then go look for houses! 

Although, how would you still approach it? Would you tell them you'll "think about it for a few days" and show your investors who are willing to buy? or would you sign the contract and then show your investors? Which in that case you could run the risk of NO ONE wanting to buy. What to do in that scenario? How can you back out if you did sign?

No wait wait wait.

You don't "act" the honest part...  BE honest.

Today I told one of my cash buyers I had a house in Manchester CT. I didn't even have the contract signed, but I told him to go by and see it and see if he wants it. His name is @Rick 

@Rick Santasiere undefined

He can confirm this. It is about honor, helping others, integrity. Yes I will be taken advantage of, and I have, but you do so and you will never do a deal with me again. It is hard to find a good investor that is actually honest, that know how to do the numbers and is genuine. The real players know the value in this and they stick with me.

The seller will recommend me to anyone they know if they ever need to sell a house.

Helping others has its bonuses, but just do it genuinely to help others.

No you don't say "I will think about it for a few days". I say, "OK I will send the contract to my buyers. If it i a good deal it will take but a few hours to know if the house will be sold. If no one jumps on it, then you chose a value that is too much". All I do is consult what a good price is and I will let them do what they want. If it doesnt sell it is on them not me.

Always have an escape clause in your contract but NEVER use it. Try to never use it. An escape clause is no big deal anymore when you were upfront to the seller in the first place.

My deposits o these contracts is 10 dollars. Why? Because I TELL the seller I have no intention of buying the property so why would I put a deposit. (This Is of course only the deals the seller chooses to wholesale). I rather find deals I can buy in cash and flip)

This is what I mean with "Don't act the part of being honest" BE honest.

Once you are straightforward and transparent wholesaling is SO easy no drama, and you have a very high success rate. Now see why 99% of wholesalers fail? They do it wrong. Hide their fees from buyer, hide their intentions from seller.Yah No poop it will be hard doing it that way!

And seriously... whomever said "yes" to being obligated to buy a wholesale deal...

Totally wrong answer. 

It is inherently a wrong answer.

The actual correct answer is: " it depends on the contract". You should have an escape clause. If you do not have an escape clause you really shouldn't be investing because you really have a lot to learn still about wholesaling...

And @Jerryll Noorden , that is why people think wholesalers are scumbags. "Just put in an escape clause so you can back out of a contract". Or honor the contract you've signed and have the money to close, if you are truly trying to help people.
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The wholesalers who hide the fact they are wholesaling, mislead sellers, don't know how to correctly determine ARV, rehab costs etc. and have to back out of deals when they can't sell it with "escape clauses", these are the ones who make a bad name. If a wholesaler is up front, honest, and the seller is competent and agrees to the terms... then I'm all for wholesaling. 99.9% of wholesalers don't do this, they lie, lock a house up, and when they can't sell it (without the seller knowing this) they use their escape clause (partner approvals, etc) to back out, say sorry and move on. All the while the distressed seller had no idea the "buyer" was just a middleman.

I'm not wholesaling, but have a relevant example. I used direct marketing to find a motivated seller. I have a contract to purchase their house (which I will brrr). They have rented a moving truck to vacate the property so I can close on their house this Thursday. How would it be if I told them now "Sorry, I can't purchase your house." These are people in a vulnerable position who would really be hurt by this. I could legally walk away and only lose my EM, but would you really want to do something like that?

confirmed @Jerryll Noorden . Helping people, and doing right by the consumer will always be the best policy. I have a slightly different viewpoint here on “obligation.” If I we’re the motivated seller and i had a choice between a wholesaler being obligated to “perform,” regardless, verses one who didn’t, I would opt to sell to whoever gave me the greatest chance of closing. Imagine if the seller knew with certainty that their “end buyer” is guaranteed? 🤔

Originally posted by @Jason DiClemente :
And @Jerryll Noorden, that is why people think wholesalers are scumbags. "Just put in an escape clause so you can back out of a contract". Or honor the contract you've signed and have the money to close, if you are truly trying to help people.

 No one said anything about hiding anything. 

You have to have an escape clause. Again YOU assume it is for scumback reasons. If you sign the contract and lightning hits the house and it burns down , YOU need to be able to legally get out of it. Escape clause.

If I tell the seller, that they want too much for their house because they think their beloved dog is buried in the backyard and that somehow makes the house 10K more valuable and the house doesnt sell, despite my warnings, I need to be able to get out of it

Lastly, before I sign the contract and before seller signs, I go over the contract with them STEP BY STEP. So Why the heck you assume it is hidden and in the back of the contract may be just a reflection on how you would do it... regardless.. not the way a legitimate wholesaler would approach it.

Seriously dude.. stop assuming things. You are getting this thing completely misconstrued. 

An escape clause is not there to sneakily get you out of a tightspot. It is there for your protection, and it is not "hidden". I explain this to the seller... HENCE I can "get away" with a 10 dollar deposit. 

And honestly, I really don't understand why you are hell bent on fighting and arguing. If you are wholesaling and this is how you do it, you are doing it wrong. If you are NOT wholesaling,  maybe your lack of knowledge on how to do it honorable is misguiding your concusions.

Either way I am not talking theory.

I am talking experience. This is how I have done it for a year. 

It works,  believe it or not. 

It works!

Buyer knew I was making this amount, seller knew I was making this amount. Why are they OK with it? Because I was honest and straightforward. I HAVE no need to use the escape clause because when I do a wholesale deal I ONLY SIGN homeru deals. I know when a deal is good and when it isnt. If it isn't good I dont sign and I send them to  my agent. She will list the property and the house gets sold. My agent gets the listing, seller gets the house sold. My reward? I got to help the seller, I made my agent money, they both love me.

Here is a thank you letter from the seller we wholesaled the property. What you do not see is the previous email asking for a review)

So why are you calling "me" a scumback wholesaler when obviously the seller is very happy with me?

;)

Cheers.

BTW, I stopped wholesaling because I HATE IT!

I do not want to deal with the legalities of it and I rather flip.

I am just proving a point here that despite the legalities of it or not there IS an ethical way to do it.

@Jerryll Noorden   your an outlier  as stated most that do this have no clue.. I remember when you started you had no clue.. I have to hand it to you.. your Smart ambitious and made it happen.

you would succeed in any sales venture.. you could become a top agent and make Lots of money with a team of agents.. but you chose to do what you do.

because of the naiveté of so many doing wholesaling and the bottom barrel feeders that teach it..

there is a lot of harm that happens and I suspect over the years the states are going to crack down on those who sell real estate without a licesne and.. equitable interest is just a bunch of BS  its a scheme your marketing for sellers your marketing for buyers your putting the two together for compensation.

you try to arugue that its not you lose.. its just up to the states to decide if they want to enforce the laws. Have you ever read the laws in your state about licensed activity.

@Rick Santasiere   why are you licensed.

I got sick of this argument and contacted my State ( Oregon regulator )  Sent her an e mail blast I got from someone who is not licensed who was trying to assign a contract. here is her reply I copied and paste it.

"Thank you for getting back to me. The advertising copy you attached to your email came out perfectly and will be very helpful. Thanks!

The Agency is well aware that unlicensed “wholesalers” are rampant in our jurisdiction. Addressing the problems is like trying to put out small individual fires in a forest that is burning. The Agency’s investigations are complaint driven, so we rely heavily on the public, and our licensees to bring these individuals to our attention.

Thank you again for the information, if I have further questions for you during the investigation I will certainly reach out.

Best regards,

Frances Hlawatsch | Financial Investigator

State of Oregon - Real Estate Agency"

so we know the activity is a violation of real estate brokerage laws in ALL 50 states anyone who wants to argue that its not well they are just in denial.. its up to the states to either enforce or not.

Rick why is there even a real estate division in your state or a license to get if non is needed to bring two parties together for the expectation of compensations.

I get why you do it.. I do the same thing Hell I buy 200 to 300 properties each and every year for our personal companies and I would say half have some little wholesaler on the hud.. :) 

But its up to those I am funding if they want to deal with them.. Me I won't  I am a broker and I have to support my industry..

@Jerryll Noorden I'm not saying that you are guilty of this, but most wholesalers, and I can say this with certainty, put clauses in their contracts for no other reason than to have an escape if they cant find a buyer. And most of them don't explain the contract like you do and hide these clauses and bank on the vulnerability of the seller to not see, or understand them.
(267) 520-0454
Originally posted by @Jason DiClemente :
@Jerryll Noorden I'm not saying that you are guilty of this, but most wholesalers, and I can say this with certainty, put clauses in their contracts for no other reason than to have an escape if they cant find a buyer. And most of them don't explain the contract like you do and hide these clauses and bank on the vulnerability of the seller to not see, or understand them.

 True, Very true. Most wholesalers are.

That is why we that know better should educate these people and not inject more negativity. but either way, yes, and this is the reason I don't like wholesaling. It is "inherently" sneaky how most people do it.

And I am man enough as well to admit that I can not blame you for assuming wholesalers are scumbags.. most of them are.

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