Keep everyone happy cancelling a Contract due to lack of buyer?

Question

I understand with my added contingencies it's not illegal to cancel the contract.  However, how does this process work and who do reach out with to let know?

Bill Plymouth · Answer

@Solomon Ficklin you are well within your legal rights to cancel your contract as long as you are still within your contingency period.  Whole-saling is a valid way to get started in This industry, but I feel like it is taught the wrong way.  You should have the intention to close on your contract even if you can’t find a buyer.  I know many wholesalers who close on the contracts and sell it a little down the line.  I know wholesale practitioners who assign contracts, but have the ability to close when needed.  The person who loses out in this situation is the seller.  If they are distressed, they lost time they could have used to rectify their situation thinking that you were the solution.

John Thedford · Answer

The seller will not be happy when he realizes he has been scammed

Don Konipol · Answer

@Solomon Ficklin

It is never “illegal” not to close.  Illegal is a term implying a criminal action.  Absence fraud, a real estate contract is a civil action.

So the question isn’t is it illegal, the question is (1) is your earnest money at risk and or (2) are you at risk of being sued successfully?

The answer depends on what contingencies, if any are written into the contract.  Also, if there is an option period, and an amount paid for the option.

The moral issue, as well as the reputational issue, also must be considered.

Often, the seller is left with the impression that he has a firm deal.  He takes the property off the market,  often using up his limited time opportunity to sell.  He doesn’t realize that at best the “buyer” is marketing his property on a best efforts basis.  Because he has a purchase contract the seller will often believe that he is better off than if he just listed his property with a broker.  Often, he is worse off.

The problem is when the property in question is the sellers personal residence.  Since the wholesaler is not the end buyer, this transaction is a consumer to business transaction.  Our collective thinking is more and more caveat emptor for business to business transactions, and full fiduciary responsibility for consumer to business transactions.

Wholesaling, without actually completing the purchase yourself, is not “real estate investing” ; it is a business model.  While it is somewhat related to brokering, it has vast differences.  Brokers have an agent, or fiduciary responsibility to their clients, and a fairness responsibility to their customers.  Wholesalers can’t ethically, legally, or morally offer advice to the sellers since they are an opposing party in the transaction.

Lest this sound like I’m against wholesaling, I will say that there are situations where dealing with a wholesaler is the sellers only viable option.  The wholesaler can often get a property sold that a real estate agent can’t, since they basically operate in different markets.  However one of the big problems is newbies wanna be wholesalers making offers with no real buyers, no experience, and no understanding of the process or its effects on the seller.  When I see a post from a wanna be wholesaler that says “ I’ve gotten the property under contract, now what do I do”, I can only shake my head.

Barry Pekin · Answer

@Solomon Ficklin,

You are within your rights to cancel the contract.  You do not have to be in position to purchase the property if you can't find a buyer.  BUT... you should be ready when you start getting properties under contract.  You should have a pretty good buyers list and perhaps a backup plan.  I'd even consider reaching out to other wholesalers that you know from all of the REI meetings you've been attending.  I know people who have offered maybe a couple thousand dollars to bring them any deals that I'm not able to pull off.  He admits it's not much compared to what I could get closing the deal, but it's a backup plan that saves face and helps the seller - which is crucial.  The seller is not a commodity.  They are a person.  They are in need to sell.  You do not want to tie up their property for a month without helping them.  Do what you can to keep your word to the seller.

Solomon Ficklin · Answer

Thank you all for the advice!  Of course, intentions are to ALWAYS close.  Just want to be prepared for an absolute worst-case scenario. Sounds like I should continue to build my buyer relationships, as well as more relationships with other wholesalers, and perhaps private money lenders.

Keep everyone happy cancelling a Contract due to lack of buyer?

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