Wholesale Contract - Is this legal?
Rental Property Investor · Raleigh, NC · Member since 2019 · 85 posts · 32 votes
Wholesale Contract - Is this legal?
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Rental Property Investor · Gulfport, MS · Member since 2018 · 113 posts · 133 votes
7y@Thomas Moran whats the ARV of the property? I mean, I get that the assignment fee is really high, but are you getting the house well under market value or not? If it's a good buy for you then you should just be happy and not worry about what the wholesaler is making. If you aren't getting a good buy then that's on you and you shouldn't have agreed to the purchase price in the first place.
102 Replies
- Rental Property Investor · Raleigh, NC · Member since 2019 · 85 posts · 32 votes7y
Probably a dumb question but - what do you mean by front side contract?
- Real Estate Agent · Tampa, FL · Member since 2018 · 83 posts · 27 votes7y
Originally posted by @Thomas Moran:
Probably a dumb question but - what do you mean by front side contract?
The contract they have with the seller. The assignment contract you sign, is assigning their contract they have with the seller, to you. It becomes your responsibility to uphold the terms in that contract, and it will have the price on there as well so you will know what they are making. Not that it matters, but since you felt misled, thats one way to know.
- Rental Property Investor · Raleigh, NC · Member since 2019 · 85 posts · 32 votes7y
Oh I gotcha... yeah I didn't see it until the lender asked me to retrieve it from him. I'd rather learn some of these painful lessons the hard way then pay for a $10,000 real estate "crash course seminar", or something of the likes
- Investor · The Creek, WV · Member since 2014 · 890 posts · 1k+ votes7y
@Courtney Kimbrough I made a point in multiple posts to say not all. You got all offended and took it personal. Only thing left to do is get over it as I'm not going to go back on what I said. You can also cancel that friend request as I'm here to meet like minded people. We are obviously not like minded.
Having said all of that, thank you for your service. Much appreciated and nothing but respect for that. - Investor · The Creek, WV · Member since 2014 · 890 posts · 1k+ votes7y
Originally posted by @Nate Marshall:
@Thomas Moran There are wholesalers I respect and in fact one of my board members is a wholesaler. The difference is he helps people who are losing their homes. He has a program to help them with the transition. In some cases he has helped them get into a lease option to stay in their home and get it back.
Wholesalers though in general are bringing the government down on themselves. Such as a case in Colorado where the friend of an aunt of a powerful state legislator had her equity stolen by a wholesaler. She's 89. Sold her home to a wholesaler for 200K who had another wholesaler who bought it for 300K before the ink was dry. Sold it to a 3rd entity for 350. In a week it was sold to a flipper who sold it for 520K. The senator is getting involved.
My friend would have paid her the 350.
Hate that it happened but glad it happened to someone in politics. Hopefully they make it illegal or at least regulated. What most wholesalers do should be illegal.
- Flipper/Rehabber · Omaha, NE · Member since 2017 · 1 post · 0 votes7y
@Thomas Moran if the numbers work for you, follow through and close! Do what you say you’re going to do - you don’t want to get a reputation for backing out of deals. If it’s a good deal, the wholesaler ought to be rewarded for bringing it to you. Why be concerned with the wholesalers margins? You agreed to buy it at the price you did. If it’s a question of legality, consult your attorney. Everyone concerned with how much the wholesaler is making is only jealous they aren’t doing the same thing. Cheers!
- 7yAlex KhanPro MemberSpecialist · Southeast Michigan · Member since 2015 · 300 posts · 244 votes
Originally posted by @Thomas Moran:
Hi BP -
May or may not be in a debacle here so I wanted to consult the community. I am under contract via an assigned contract through a wholesaler. I just figured out the obscene margin that he is making (which doesn't necessarily bother me), and it begs the question why is the seller taking such a hit on equity? Is there something about the house I don't know?
I am going to sleep on it, but I am thinking about exiting the deal. He made me sign a contract that effictively states, "forfiting of earnest money does not release you from the contract, and you can still be forced to close". Now is this legal? I've never heard of anything like this before, and I've never done wholesaling. I had no intention on bailing on the deal, but it's very anxiety provoking to be trapped.
Thanks in advance. -Tom
The guy can not force a deal. That’s just absurd. I mean wholesaling yes cool and profitable if done right with complete transparency.
He was supposed to give you original copy of PA before he sent you assignment for signature.
That’s like signing an agreement and taking someone else’s place in a contract or whatever the case may be without seeing the contract that you’re taking over. It doesn’t make sense only a moron would do that. ( no offense if that’s what you did )
But at the end of the day you don’t want to be forced to buy it. If it’s such a great deal he will be Able to move it.
What I usually do is give a due diligence period and inspection period then the buyer/ Assignee has option to back out if they are not comfortable with the deal. Emd gets refunded less title search fees.
So I mean 2000 emd and if buyer backs out they get 1900 back. 100 payable to title for title search.
Legally assigning anything to someone or an entity they must be provided with full disclosure because you are taking the role of the buyer pretty much for a fee.
- Rental Property Investor · Raleigh, NC · Member since 2019 · 85 posts · 32 votes7y
@Alex Khan Hey Alex - that's super insightful. I know you can't speak as an attorney, but in your experience if the assignment fee wasn't disclosed upfront (the contract just had the total amount as if he was selling the property for that much) it's not legal?
It was a really good deal and there was a lot of competition (or so he said) so I felt compelled to be flexible on the terms to get my offer accepted. Growing pains.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Van Harman:
@Thomas Moran if the numbers work for you, follow through and close! Do what you say you’re going to do - you don’t want to get a reputation for backing out of deals. If it’s a good deal, the wholesaler ought to be rewarded for bringing it to you. Why be concerned with the wholesalers margins? You agreed to buy it at the price you did. If it’s a question of legality, consult your attorney. Everyone concerned with how much the wholesaler is making is only jealous they aren’t doing the same thing. Cheers!
Or maybe those that U think are jealous just have a much higher set of Morals Ethics and Character than you do . ? could that be the case. ?
- 7yAlex KhanPro MemberSpecialist · Southeast Michigan · Member since 2015 · 300 posts · 244 votes
Originally posted by @Thomas Moran:
@Alex Khan Hey Alex - that's super insightful. I know you can't speak as an attorney, but in your experience if the assignment fee wasn't disclosed upfront (the contract just had the total amount as if he was selling the property for that much) it's not legal?
It was a really good deal and there was a lot of competition (or so he said) so I felt compelled to be flexible on the terms to get my offer accepted. Growing pains.
I can’t speak about the exact legality but if you’re an assignee the assignor has to provide you the contract he’s assigning to you. How else would you be able to perform on the contract if you don’t have a copy of it or know what the conditions are?
The fee for assignment and payment for the purchase of the property are 2 different things and it's all on the HUD statements for closing anyways.
- Rental Property Investor · Raleigh, NC · Member since 2019 · 85 posts · 32 votes7y
You make a good point. I ultimately got the original purchase of sale contract but it was after I signed the assignment contract. This is my first rodeo, so I didn't know any better. It's interesting to note the gray area between what's "technically legal" and a scenario that a judge would actually enforce.
Update: We pushed closing back by 2 weeks and I'm still at the original agreed upon terms. There's a clause in the agreement that says $500 a day closing push-back fee, which is kind of insane and I got that removed. We will close 2 days before his original contract expires so he will be sweating.
- Realtor · Tempe, AZ · Member since 2017 · 541 posts · 442 votes7y
You could be held in breach of contract by not closing, but I highly doubt he would go after you for that. He will probably take your down payment and resell to the next investor.
I would tell him ASAP if you plan on exiting. The quicker you forfeit the property the quicker he can get it resold and if does not incur any holding costs (IE you're not bailing on him the day before closing so that he has to now buy it, buy insurance, etc.) then maybe he will refund your down payment
Although with you wanting to exit the deal just because you don't like how much money he's making, when you loved the deal previously, I don't know that he will refund you. I'm sure if he was making $200 you wouldn't be as concerned.
- Real Estate Agent · Philadelphia, PA · Member since 2018 · 428 posts · 484 votes7y
@Dustin P. you nailed it right there. I run into this issue with investors sometimes when I bring assignment contracts where the fee is higher than they think I deserve when often times investors aren't aware of the work that is being put into it. BUT ON THAT SAME NOTE- sometimes the large fees can be incredibly sketchy.
@Thomas Moran when you see a large fee, it can mean a few things depending on the legitimacy of the wholesaler you are working with.
1) They put in A TON of leg work. Here are some samples of what I have done for some of my juicier fees:
Working the deal for +7 months, arranged the person a place to stay (once worked a woman to the top of a list for a retirement home when she was a year wait), took them to the DMV to get valid ID or social security card from human services, contacted every relative they had for documentation for an estate, tracked an heir down in a prison in West Virginia (I was coming from Philly) to get him to sign off. These are a lot of things that few wholesalers do and almost no investor sees.
2) Property Fraud. I run into this all the time working with wholesalers in Philly, it's pretty damn rampant. Fortunately I only work with title companies I trust that do the due diligence to uncover these indicators and prevent the property from ever getting to closing.
3) Taking advantage of a person who is mentally unable to sell their own home. There is a difference between guiding a seller through a process versus taking advantage of them.
Some sellers who are living in hoarders homes feel like they are stuck and need guidance and will sell quickly and cheaply if their non-monetary needs are met. Other sellers are just in distressed situations where they will take the first thing they see. If you are using a quality title company and you have your contractors go through, thoroughly investigate it, and build in "what if" into your budget, you have little to fear on your end. Good luck and I hope this was helpful!
- Rental Property Investor · Raleigh, NC · Member since 2019 · 85 posts · 32 votes7y
Great post! Thank you. I actually tried wholesaling for a very short period of time and determined it was not my cup of tea, but from the little responses I got I quickly realized it's not "easy money". Thousands of dollars on marketing budgets and lots of conversations with tire kickers are a minimum. I don't doubt some of these guys claw tooth and nail to solve problems and provide value. I'm not sure the gentleman i'm working with though is that guy...but i'll give him the benefit of the doubt.
Do you mind elaborating a little on what you consider to be "property fraud"? Is this like marketing properties that you don't have under contract and pocketing EMD or assignment fees, never closing and skipping town? Thanks again for the thoughtful and intelligent response.
- Realtor · Tempe, AZ · Member since 2017 · 541 posts · 442 votes7y
@Jimmy O'Connor I agree when you hit a big fee there's usually a lot that goes into it. For example I have a colleague that bought a house for $10. The guy was going bankrupt or something along those lines and wanted to show as much of a loss as possible. The house was worth $350k+. Should he only take a $10k fee on that?
There's always the alternative of finding your own deals
- Real Estate Agent · Philadelphia, PA · Member since 2018 · 428 posts · 484 votes7y
@Thomas Moran there is false advertising/bait and switch and then there is actual fraud.
False Advertising/ Bait and Switch:
What a lot of wholesalers will do is kick around a property that they heard about (usually one that is passed from FB group to FB group) without actually having a contract on it. Once they have a buyer then they will actually make the front end agreement OR they will advertise a property that is already closed just to draw attention to their acquisitions.
Property Fraud:
When people steal homes. Yes, I mean steal homes. This is particularly rampant in Philly and Florida. Florida because of the high density of senior citizens who are taken advantage of and Philly because it is an older city. What people will do is hire people with the same names as those on the Deeds to sign off on properties or provide all paperwork as if they are the actual owner that is on title. I have seen this- which is why I am VERY particular about looking at the recorded mortgages and cross referencing obituaries when I am dealing with estates. Any semi reputable title company should catch this, but if they do not then you can start work on a project and someone with the real deed will come up and ask why you are on their property.
- Rental Property Investor | Realtor · Jacksonville FL | Savannah Ga |Raleigh NC · Member since 2017 · 467 posts · 161 votes7y
There is alot wrong here... from your end, ..is your goal to be a savvy buyer, or submit to the world of retail, and sellers?
I consider you lucky....I used to buy retail from realtors and felt like I got a deal at 5% off retail asking price, until I learned to be a better buyer, or no buyer. I learned early to not criticize other people for my actions or lack of education and savvy, if I had buyer remorse.
First, of course a hard money lender needs to see a purchase and sale agreement some sort of ratified contract, to start approval on the ARV, numbers and deal. HML's want deals, traditional lenders do not want deals.
A hard money lender not approving a deal based off assignment fee, rather that arv, appraisal, etc, is possibly not a hard money lender, are you borrowing from a personal amateur friend or emotional uncle who wants you to get it cheaper? get a new HML.
Assignment contracts display assignment fee, and the original purchase sale contract being assigned to you is given to you and settlement company. Both are given to title. The end-buyer (you) know what's going on.
You bashing on assignments, assignors, why? Because assignor is making profit; money, and you decide it's too much? You don't like the numbers now on the deal and then so walk and forfeit your deposit, and maybe he can litigate for remainder of fee, rightly, or a portion,...would assignor win that, probably not......would assignor force you to sign and close and even win? doubtful. Most contracts say that anyway because buyer remorse is higher than seller remorse.
Assignments of contract are done all the time and not bashable. Buyers getting scared and greedy at an assignor of contract is more bashable. Sellers wanting what the last suicker payed retail from buyers is more bashable. You as buyer are insulted at the fee the assignor is making for finding the deal, well sellers insult buyers all the time with the price they want. Just look at Raleigh Retail MLS. The buyer sets the price, not the seller.
You are buying a contract, and closing on that with seller, its legal, and a transaction. And you're paying a fee to assignor for alot of things.
You don't have the marketing ability to find a deal yourself other than with an mls realtor, so you are buying a contract from someone, off market, and now you want out because you don't like the numbers, so then forfeit the non-refundable emd righty, say your financing didnt get approved, now the assignor has to do the same to seller, and you look for better numbers, but don't criticize the seller of contract, wholesaler. If its too emotional for you, or you want to take your eyes off the deal as a keeper, and get greedy and put your eyes on the seller of contract, your not unusual, and you have more experience to pick up and learn, and probably should buy with a realtor, and accept a no-deal retail that a hard money lender will definitely not touch.
Go to wake, raleigh rei, for group therapy, but what do you want to hear? that youre buying a deal or not? or that you can back out because assignor is getting too much money? or if you can deal directly with seller yourself?
You should be double closed on, or blind side HUD closing...a mistake the assignor made is not double closing.
A mistake you made is are you getting into a purchase sale agreement? or are you signing an assignment contract? If your signing assignment contract and don't know what's being assigned to you, then you cant blame assignor? Don't you want to take responsibility?
A mistake is to entertain and listen to, and be swayed by retail investors on this site bashing on wholesale, assignors, deal finders, marketers...if thats the case, go buy a 5% off deal on mls from a retailator, and youll be upside down and no cash flow, but you would have made a seller happy.
Buyer sets the price not seller...if you want to submit to retail do it, but don't bash prospectors, marketers and savvy deal finders ....I have no respect for retail pushers.
When you buy off amazon from a seller, your buying from a wholesaler...do you then return your product because you don't like the profit made, criticize amazon, and the private label seller, and complain that you didnt buy it directly from the production line seller and get that price?
You said "He made me sign a contract that effictively states".... This is weak. Unless you were somehow forced against your will to sign an assignment contract, the assignment contract displays fee, and you get the original purchase sale agreement being assigned to you. You the end buyer know the numbers. HML are good for telling you if its a deal by the numbers, not telling you to walk because of the spread.
From this thread, platform, and real estate in general, never confuse popularity or age or negative criticism as a source for brains and savvy buying advice and being a numbers investor. If you are a buyer, do not take advice for buying from a seller or retailator, or criticizer.
im not a licensed lawyer, im reasonable
- Rental Property Investor · Raleigh, NC · Member since 2019 · 85 posts · 32 votes7y
Honestly I’ll let @Jay Hinrichs take that one, I’m sure he will love your response.
I am not advocating that I should cut the wholesaler out of the deal or negotiate a lower fee. I never said that. I also stated multiple times that I think wholesaling can be valuable for all parties in most situations.
Yes I am new, as you once were, and mistakes will be made. The contract was signed and I agreed to it’s terms, but the assignment fee was never stated up front. I am still in the deal and have not exited because of the fee. I have to applaud myself for taking the plunge though when so many sit on the sidelines. I was simply seeking counsel from other members. I am obviously playing in the Wild West and not the mls because I am very aware of the Raleigh-Durham market and the macro economic trends. I have lived here for almost 30 years I don’t need a gurus advice on that.
Who hurt you? You’ll catch more flies with honey than vinegar.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Thomas Moran:
Honestly I’ll let @Jay Hinrichs take that one, I’m sure he will love your response.
I am not advocating that I should cut the wholesaler out of the deal or negotiate a lower fee. I never said that. I also stated multiple times that I think wholesaling can be valuable for all parties in most situations.
Yes I am new, as you once were, and mistakes will be made. The contract was signed and I agreed to it’s terms, but the assignment fee was never stated up front. I am still in the deal and have not exited because of the fee. I have to applaud myself for taking the plunge though when so many sit on the sidelines. I was simply seeking counsel from other members. I am obviously playing in the Wild West and not the mls because I am very aware of the Raleigh-Durham market and the macro economic trends. I have lived here for almost 30 years I don’t need a gurus advice on that.
Who hurt you? You’ll catch more flies with honey than vinegar.
I can only talk about how as a HML myself over the years and NOT a private lender full blown HML company with over 20 employees etc.
large spreads like this are a red flag.. and we simply don't fund those.. Keep in mind as a HML we are trying most of the time to see how many ways our borrowers are trying to screw with us.. and this is one way. we worry the end valuations are not correct and our borrower is going to have a problem with the exit.. then you have the moral issues and we all have a moral code that is personal and we adhere to. Believe me I have made some HUGE spreads over the years on property I bought and closed on.. So I understand what can happen..
And right now we are rolling out a patented software program to find Hidden lots in exiting lost of record that sellers don't know about realtors don't know about.. we did two this month alone in Portland right off of MLS we determined or mined for extra lots these will both be over 150k profits two deals ONE MONTH 5 minutes on our software.. But we did close on both the last week over little over 1 million purchase prices combined.. roll out in 4 to 5 months with 300k plus profit.. and all for just doing administrative work at the city and creating value no one knew they had.. Same thing when I used to buy timberland.. who knows the value of timber and how to get it to the mill.. talk about OPM.. we would get 100% interest free loan ( log advance) from the mill that would pay for the entire property.. we log it in 60 days or less then end up with 100 to 400k of free and clear property.. but again we bought it.. we closed on it created the value then resold that's the definition of wholesaling.
- Rental Property Investor · Raleigh, NC · Member since 2019 · 85 posts · 32 votes7y
I’m going to close. The numbers still work and it’s too much of a headache legally and what-not to bail
- Rental Property Investor · Salt Lake City, UT · Member since 2016 · 53 posts · 24 votes7y
If the Hard Money Lender is expressing disdain over the Wholesalers transparency....find a different Hard Money Lender.
- Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes7y
Probably through deceptive methods, high pressured sale. I am not an attorney but suggest you see one who can help you getting the EMD back. The EMD should sit in a 3rd party title escrow account. If the wholesaler is rich the lawyer can sue the heck out of him before he tries to take advantage out of another person.
Good luck.
- Escrow Officer · Temecula, Ca. · Member since 2016 · 418 posts · 152 votes7y
What I think of here is that the seller is older and may not be savvy and is taking what they can get, maybe out of desperation and maybe not. Then, some family member gets wind of the sale (after closing), thinks they got juked out fof big money (whether appropriate or not) and then they pull the fraud and ELDER ABUSE card out and there are judges that will unwind an entire deal for elder abuse and CPS gets involved and it's ugly. I have had 2 diff sellers pull that card after my investor closed escrow. It's a headache for everyone involved and it has changed how we handle elderly sellers on investor deals.
For what it's worth, the largest spread I have ever closed on was a $200k assignment fee (to a daisy chaaaaiiiinn) and the buyer's exit price was $400k-ish with about $150k in profit after rehab and selling costs. If a party gives informed consent, then the deal is good...IMO.
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